In retirement, the emphasis in personal finance shifts to preserving wealth in order to sustain a chosen lifestyle. Wealth preservation is also important to ensure there is an estate of sufficient size to pass on to loved ones and good causes.
Here are 10 financial tips for the retirement years, offered as a complement to the tips in the previous instalments of this series. But money is not everything, of course. Whether one is spending their senior years travelling the world or simply hiking local nature trails, happiness is how you make it.
1. Money can't buy retirement bliss
Financial products are marketed with brochures full of happy faces. Don't get swept up by the cheery images, says certified financial planner Mark Cussen. "Much of the marketing material for retirees portrays a fantasy world, one with no divorce, widows or widowers, depression, loneliness or illness." Money doesn't guarantee a happy retirement; other factors, such as attitude, are important too, observes Mr. Cussen.
Similarly, another certified financial planner, Cherith Cayford, notes in the March, 2000, Canadian MoneySaver magazine: "Within about six months of retirement most people cease to obsess about finances and begin to settle down to live within their real means. Some people believe that a successful retirement is all about money but once they retire the realization dawns that, while significant, it's only one piece of the puzzle."
2. In search of yield
When interest rates are low, retirees ask: "Can you advise me of an investment vehicle that's relatively safe and liquid, which pays somewhat better than bonds or money markets?"
Gordon Pape, the financial writer and publisher of www.buildingwealth.ca, replies: "If you are prepared to take a little more risk in exchange for higher potential returns plus some tax breaks, consider adding some preferred shares, real estate investment trusts, and conservatively managed income mutual funds to the portfolio."
The Invest for Life series:
Sorting through the diversity in these investment vehicles can be challenge, so Mr. Pape's The Income Investor newsletter, could be of help. Another advisory is PrefLetter, authored by preferred-share expert James Hymas of Hymas Investment Management Inc.
Not to be overlooked are the preferred shares of split-share corporations, one example being the Dividend 15 Split Corp. For conservatively managed balanced mutual funds paying monthly income, one choice is the BMO Monthly Income Fund.
3. Core/satellite approach to portfolios
Many retirees manage their own investments and pick stocks for their portfolios. But "the average investor who buys stocks tends to have a poorly diversified portfolio," say Warren MacKenzie and Ken Hawkins, financial advisers at Weigh House Investor Services and authors of New Rules of Retirement .
They say active investors would benefit from taking a core/satellite approach to portfolio management - which involves combining exchange-traded funds (ETFs) with stocks. "To provide diversification, you use ETFs, which form the 'core' of the portfolio. Then you select individual stocks that are expected to outperform the benchmarks and form the 'satellites' around the ETFs."
With the advent of ETFs, people who buy individual securities can improve their portfolios in terms of performance, volatility, tax efficiency, and costs. The ETFs "will allow investors to receive broad-based diversification and add money-making ideas."
4. Generating growth in your portfolio
One vehicle often recommended to seniors who want to maintain exposure to stocks is segregated funds, also known as guaranteed investment funds or variable annuities. They are mutual funds that come with a number of guarantees.