Money & Career

4 retirement-savings strategies

Author: Canadian Living

Money & Career

4 retirement-savings strategies

Retirement savings strategies are a relatively new concept. Decades ago, people needed less to live on, and besides, our great-grandparents were lucky if they lived to see their savings run out. Now, though, with retirees travelling the world until they're well into their 80s, if you want to have a good post-working life you need some serious cash. Some experts say you need at least $1 million saved up.

The truth? How much you'll need really depends on what you want to accomplish. Do you want to take trips every year, or are you content to relax at home or at the cottage? Figure that out and then see if these investment tips will help you reach your goal.

The 60/40 rule
There's been a longstanding rule that young people should put at least 60 per cent of their money in equities and 40 per cent in bonds. The older you get, the more money you should allocate to fixed income. By the time you retire, 60 per cent of your portfolio should be in bonds and 40 per cent in stocks.

The idea is that when you're young you can take a bigger risk in the market -- you have more time to recover from losses. The closer you get to actually needing the money, the more protection that cash needs.

For some, there are no rules
Some advisers say the 60/40 rule makes no sense. While the premise that the older you get, the safer your investments should be still stands, for many wealthier Canadians, it might be wise to have a high percentage of your portfolio in stocks.

Everyone needs money to live on -- and that should be in safe investments. But for people who have extra dough to spend, why not try to grow those savings even in retirement? This is especially true for people who have more than enough cash to last until they die -- if the excess is going to the younger generation for their eventual retirement, then invest it like you're a 30-year-old.

Buy and hold?
There was a time when people would buy stocks and hold on for dear life. And why not? The stock market was only moving in one direction: higher. Now, though, with markets jumping up and down every day, buying and holding may not work.

Ken Solow, chief investment officer at Columbia, Md.-based Pinnacle Advisory Group and author of Buy and Hold is Dead (Again), says Canadians need to be more tactical in the way they invest. Yearly portfolio rebalancing is a must; savvier investors should consider buying and selling more frequently to take advantage of investment opportunities.

Three-basket portfolio
If the 60/40 model doesn't appeal to you, try the three-basket portfolio, in which you create three financial "baskets." The first is where you hold your everyday investments, the government bonds and GICs that will generate income you can live on. The second basket would hold safe, conservative, dividend-paying stocks, the goal being to protect your capital and also create income that you can use to buy the investments in your first basket. The third basket holds your riskier assets, such as mid- to small-cap stocks. This is money that you can afford to lose, but hopefully you'll make enough gains to help fund the second basket.

There are many more ways to save for your golden years, but these four strategies should help you get started.
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Money & Career

4 retirement-savings strategies

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