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Should You Be Concerned About Fluctuations in Your Retirement Savings?

It’s no secret that retirement planning can be tricky! There are a lot of factors to consider, and it can be difficult to know where to start. One question that often comes up is whether you should be concerned about fluctuations in your retirement savings.

The answer to this question is not a simple one. It depends on a number of factors, including your age, your investment goals, your overall financial situation, and your retirement income sources. However, there are a few general principles that can help guide your decision-making process.

Market Fluctuations: For simplicity, let’s say that you have $1 million in your retirement accounts. You wish to draw $50,000 per year. That’s 5%. Now, what if the market drops so that your account only holds $900,000. You still want to take the $50,000. Now you are drawing 5.5%. in other words, you are taking a bigger chunk of your investments. This is called “sequence of withdrawals”. Avoid taking money when the markets are down. I know, that’s easily said but difficult to enact. Be aware of this.

Age: If you’re younger, you generally have more time to recover from any losses in your retirement savings. This means that you can afford to take more risks with your investments, and you don’t need to worry as much about short-term fluctuations. Plus, when you’re young, you can work part time. Leave your money to grow.

On the other hand, if you’re closer to retirement, you may want to take a more conservative approach. This is because you’ll have less time to make up for any losses in your savings, and you’ll need to be more careful about preserving your capital.

Investment goals: Another important factor to consider is your investment goals and knowing the retirement lifestyle you wish aim to achieve. If you’re investing for the long term, then you can afford to take more risks and tolerate more volatility in your portfolio. However, if you’re trying to preserve capital or generate income in the short term, then you’ll need to be more conservative with your investments.

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Financial situation: Finally, it’s important to consider your overall financial situation when deciding how to invest your retirement savings. If you have a large nest egg, you can afford to take more risks. However, if you have a limited amount of savings, you’ll need to be more careful about how you invest it. Keep working.

Retirement income sources: Another factor to consider is your retirement income sources. If you have a pension or other guaranteed income source, you can afford to take more risks with your investments. However, if your only source of income is your retirement savings, you’ll need to be more conservative with how you invest it.

While some people rely solely on their company pension plan or CPP to provide them income upon retirement, there are other investments and sources of retirement savings you may be participating in such as investing savings you have in a TSFA or RRSP. These investments (which can be in mutual funds, ETFs, stocks, bonds, etc) are likely the ones you need to be most concerned about being impacted by market fluctuations.

Government Pensions: Wait. Why take CPP or OAS early? You pay more back in tax if you have other income PLUS both CPP & OAS rise annually if you defer. They max out at about $30,000 annually at age 70.

How To Combat Fluctuating Retirement Savings

It’s important to stay informed about the factors that can affect your retirement savings balance and set your retirement goals accordingly. This way, you can make sure that you have enough money to support yourself during retirement.

If you are concerned about the fluctuations in your retirement savings balance, there are some things that you can do to help:

1. Generate multiple sources of income

The best thing you can do to help your pension balance is to generate multiple sources of income. This way, even if your pension takes a hit, you will still have other sources of income to fall back on.

2. Stay informed

It’s important to stay informed about the factors that can affect your retirement savings balance. This way, you can make adjustments as necessary to protect your savings. Also, make sure to keep an eye on your pension balance so that you can catch any potential problems early.

3. Diversify your investments

Another way to help protect your retirement savings is to diversify your investments. This means investing in a variety of different asset classes, such as stocks, bonds, mutual funds or ETFs, instead of putting all your eggs in one basket. By diversifying your investments, you can mitigate the risk of losing money if one particular asset class declines in value.

4. Invest in a mix of growth and income-generating investments

A good way to help protect your retirement savings is to invest in a mix of growth and income-generating investments. Growth investments, such as stocks, offer the potential for capital appreciation, while income-generating investments, such as bonds and dividends, provide a source of regular income. By investing in both types of assets, you can help reduce the overall volatility of your portfolio.

5. Plan for unexpected expenses

Finally, it’s always a good idea to plan for unexpected expenses. This means saving an emergency fund and considering other ways to protect your retirement income, such as disability insurance or long-term care insurance.

There are a few key takeaways from all this:

  • Age, investment goals, financial situation, and retirement income sources are all important factors to consider when deciding how to invest your retirement savings.
  • If you’re younger and investing for the long term, you can afford to take more risks with your investments.
  • If you’re closer to retirement or relying on your retirement savings for income, you’ll need to be more conservative with how you invest it.
  • It’s important to have a diversified portfolio that includes both stocks and bonds in order to balance risk and return.

What do you think? Does this article help answer your question about whether you should be concerned about fluctuations in your retirement savings? Let us know, and reach out to us to book a free consultation call.

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Chat with Certified Financial Planner, Bruce Youngblud. He can advise you on pensions, retirement planning, tax planning and estate planning. Plan to enjoy retirement to the fullest!