Stop agonizing about your retirement savings and start strategizing.
Anxiety about not having enough put away for retirement is rampant in this country. Fortunately, there are solutions. If you simply can't contribute more to your retirement savings plan, you can work longer. You can also try ramping up the risk level in your retirement portfolio to achieve higher returns, and scaling back your retirement lifestyle aspirations to comfortable but not extravagant levels.
In a recent survey commissioned by BNN, CTV and Standard Life, just 35 per cent of participants indicated they were confident of having enough money to live on in retirement. Another 41 per cent said they will have enough to live on, although their standard of living may decline or they will have to continue working, while 16 per cent said they will have to rely on the Canada Pension Plan and Old Age Security to supplement their savings, and 8 per cent said they will not be able to afford retirement at age 65.
Contributing more to your registered retirement savings plan is the most obvious and effective way to ensure you're financially comfortable in retirement.
Can't see any spending to cut so you can afford to contribute more? Then it's time to create a family budget to track income and spending, said Ted Rechtshaffen, president and chief executive officer of the advisory firm TriDelta Financial. "There may not be much you can do, but almost everyone can find a couple of things to cut if they do a budget."
If you're upping your risk exposure because you've had a loss and you want to swing for the fences, that's a terrible strategy. Malcolm Hamilton, actuary at Mercer Inc.
Remember, too, that there's a long-term tradeoff when you spend today what you could be saving for retirement, Mr. Rechtshaffen said.
"Let's say you're a 40-something person and you're thinking, 'Am I going to take a second family vacation this year?' The tradeoff is that you might have less money when you're 82."
Working in your retirement years is a particularly effective way to conserve and extend your retirement savings.
"It's very powerful - both because you get to save more and, more importantly, because you're not drawing down on your savings early," said Malcolm Hamilton, an actuary at Mercer Inc.
One proviso offered by Mr. Hamilton is that you need a serious job to have an impact on your savings when you're retired, not something related to, say, a hobby.
Mr. Rechtshaffen is another believer in the financial benefits of working in retirement, and he's optimistic about seniors finding useful employment.
"There are a lot of companies, ourselves included, who would love to work with people like that. If my target clients are 60-something, who's closer to those people than someone who is a 60-something professional?"
In Mr. Rechtshaffen's analysis, a part-time job paying $25,000 annually could generate meaningful savings for a senior. Over six years, that amounts to $150,000 in extra income, which he considers quite significant.
Normal people don't have the big incomes after retirement, and they don't have the ambitious spending plans. The fact that they can live comfortably without going to work any more is itself a big step forward. Malcolm Hamilton
Ramping up the risk level in your portfolio with more exposure to the stock market is a tricky option for beefing up your retirement savings, so approach it with caution.
Mr. Hamilton said there are two groups of people who might consider taking on more risk. One is people who have invested only in guaranteed investment certificates and need to make more than the 2 per cent to 3.5 per cent being offered right now. The other is people who sustained catastrophic damage to their portfolios in the 2008 stock market crash.
Adding risk is a legitimate approach for the GICs-only crowd, he said. But it's not the right strategy for victims of 2008 because of the potential for yet another market setback at some point.
"If you're upping your risk exposure because you've had a loss and you want to swing for the fences, that's a terrible strategy," Mr. Hamilton said.
Mr. Rechtshaffen said he likes to remind conservative clients that there is a risk in holding only GICs, which is outliving your money. A solution: Mix in some exposure to the stock market in order to boost your long-term average annual returns. Even after the sharp downturn of 2008, the S&P/TSX composite index still averaged 8.6 per cent a year for the 20 years to the end of March.
A fourth option for addressing your concerns about a retirement savings shortfall is to scale back your lifestyle aspirations for your senior years. Your biggest challenge here may be to put aside the villas, palm trees and beaches that appear all the time in the marketing of investment products for RRSPs.
Mr. Hamilton said retired corporate executives may live this kind of a lifestyle in retirement, but everyday people typically do not. Still, he adds, they're content with their lives.
"Normal people don't have the big incomes after retirement, and they don't have the ambitious spending plans," he said. "The fact that they can live comfortably without going to work any more is itself a big step forward."
If you're wondering what life is like in retirement when you're trying to conserve your money, Mr. Hamilton suggests it will be something like the economizing that's necessary when you're raising children and carrying a mortgage. And for your leisure time? "The key to retirement is to develop affordable hobbies."