Fidelity Investment Canada’s vice president of retirement Peter Drake said last Monday that the risks articulated in the 2005 Lifetime Income Planning report still hold true after the 2008 recession.
We paraphrased the five risks he outlined:
1.You’re going to live too long
It’s great that life expectancy has risen, but it’s not going to be great if you run out of money. Plan for 25-30 years of retirement income. This holds true especially for women, who tend to live longer.
2. Inflation’s a downer
In the 1960s chocolate bars used to cost a nickel. Now you’d be lucky to get them for $1.15. Similarly, after 25 years of retirement, your purchasing power at 2%/year inflation is likely to be 40% less than it is now. Plan accordingly.
3. Lack of diversification
You want to grow your investments without depending on one fund too much, especially with the recent volatility in the market. Divide your assets among stocks, bonds and cash.
4. Outliving your investments
Don’t withdraw all your money in the first few years of retirement. The National Post reported that Drake said that the risk of outliving your investments rises with “annual inflation-adjusted rates over 4 per cent to 5 per cent of the original value of a portfolio”
5. Health can be money
Take care of your health. A 2010 Fidelity survey reported that 39% of retirees thought health-related costs could lower their standard of living and cost them a big chunk of their savings.