The pain of inflation is real, but temporary

Wealth managers discuss how to get the most out of your nest egg

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Financial market volatility is weighing on Canadian wallets from every angle. That’s because of rising food and transportation costs, or a sharp decline in the value of stocks once considered safe bets for investors.

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In June 2022, Statistics Canada reported that nearly a quarter of Canadians have withdrawn money from their savings to pay for expenses.

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Canadians nearing retirement need slightly different strategies to protect their resources. Reactionary measures, such as adjusting spending habits, while beneficial, are only part of the formula for making the most of retirement savings in difficult economic times.

“The most important thing is to have a plan,” says Laura Southall, Senior Wealth Advisor at Assante Wealth Management. “Whether or not you retire with a lot of money, look at the numbers and really see the income coming in. In my experience, retirement is a huge unknown for a lot of people, and things are going to get worse.” It becomes clear by breaking down the .It relieves mental stress.

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First, Southall recommends exploring other sources of retirement income beyond personal savings, such as work, government pensions, and Canada’s Old Age Security program. Knowing how much each source of income offers and, importantly, when it will be paid out, can help you calculate the minimum amount a retiree can expect to receive each month when they stop working.

The information reveals how much income older people need to maintain the lifestyle they want.

Leslie McCormick, Senior Wealth Advisor and Portfolio Manager at ScotiaMcLeod, says a diversified portfolio is the number one risk management tool for those looking to protect their financial reserves.

“When you become overly dependent on one source of income, problems can arise. Do you have a plan in case it does happen? Pulling different levers depending on the situation will ensure that your income is protected.”

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One such instrument, the stock market, is starting to rise from bear market conditions after falling dramatically in June 2022. During the plunge, part of the reflexive reaction of many investors was to move their positions into cash.

But Southall says it will do more harm than good in the long run. Even a volatile investment is more likely to catch up with inflation than money that is not invested at all.

“Older people are nervous and sometimes think they should go to cash and keep what they have, but this is a concern. You need to have a plan to put a wedge of income in so you don’t pull money out of your portfolio when it’s low.”

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Income wedges that shift a portion of retirement savings into easily accessible, low-risk investments like GICs protect a portion of an investor’s savings from market volatility without completely giving up potential returns. make it possible.

By investing a few years’ worth of retirement money this way and the rest in a diversified portfolio, retirees can avoid losing the long-term benefits of money they won’t need for years to come.

“Recognize that inflation varies,” says McCormick. “Just because occupancy is high today doesn’t mean it will last until someone retires. We plan using the long-term average of inflation, which is about 3% per annum over the long run.” If you’re really worried, do a stress test with 4% of your retirement plan and see how that affects you.”

The story was created by content works, Postmedia’s commercial content division.

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The pain of inflation is real, but temporary

Source link The pain of inflation is real, but temporary

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