Canadians have been urged to save more for retirement. There are some good reasons for that. On average we’re living longer and that longevity risk has the potential to derail our financial plans. There are also other risks that need to be controlled. Those include:
- Volatility – the magnitude of losses and gains over time due to market swings.
- Financial risk – how much decline in your portfolio you can accept given the need to preserve capital.
- Erosion of purchasing power – there are risks that investment returns will not keep pace with inflation over time.
Beyond these risks, there is also the growing indebtedness within our aging population. While the reasons vary, more seniors are carrying debt into their retirement years. I don’t want to be one of those statistics. If a growing number of seniors cannot be financially secure after decades of employment over various bull markets, in addition to financial assistance from government programs such as Canada Pension Plan and Old Age Security, I think our economy is in trouble. An aging population and demographic shifts are going to put an enormous strain on our economy. I’ve read in a few recent articles that stated about ¼ of our population will be age 65+ in another 20 years. That translates into more retirees and less government revenues from working-class Canadians compared to today. Supporting retired Canadians might very well become one of the biggest burdens to our government and there’s no telling how federal financial and healthcare programs must react to address it.
With some of this doom and gloom on the horizon I’m doing what I can to take matters into my own hands. For one thing, I’m treating debt as the nasty four-letter word it is. I’m also investing, wisely, at least much better than before. Long gone are the days of holding high-priced financial products like some mutual funds charge (doing that is another four-letter word). In recent years I’ve decided to invest in low-cost indexed Exchange Traded Funds (ETFs) that provide diversification, purity, transparency and passive growth within my portfolio. These ETFs pay quarterly distributions that I reinvest; ETFs that over time will become the “core” of my portfolio. I’m also invested in 30+ dividend paying stocks from Canada and the U.S., companies that pay dividends every month and quarter, stocks that could be branded as the “explore” portion of my portfolio. With this “core” and “explore” approach our goal is to earn $30,000 in tax-efficient and tax-free income per year to help support our retirement expenses, also covered by some pension income and other retirement income streams. As of this month, we’re projected to earn $9,250 for this calendar year. We have a very long way to go, to save, to invest and to reinvest the distributions and dividends earned to meet our objective. I remain confident this income goal is achievable and in doing so it will help protect us from many of the financial risks above.
Canadians have been urged to save more for retirement for lots of reasons. Reinvesting distributions and dividends paid is a big part of our retirement plan and we’ll need to keep these habits up for at least 10 more years – let’s see where we get.
Oh yes, before I go, thanks to my friends at Canadian MoneySaver, I’m pleased to giveaway in support of Financial Literacy Month #FLM2014 five (5) FREE 1-year online subscriptions to Canadian MoneySaver Magazine. Make sure you enter the giveaway below! As always, thanks for reading.