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(Fred Lum/The Globe and MailNewspaper)
(Fred Lum/The Globe and MailNewspaper)

Financial planning

Never too late to rebuild retirement funds Add to ...

They saved and lost. That, in a nutshell, sums up the stories of thousands of Canadians who saw years' worth of retirement savings vanish in the last recession.

Some lost big time when, in a panic, they sold their holdings at depressingly low prices and locked the money in low-interest, low-risk investments - only to see the markets rebound in 2009. Others had no choice but to withdraw their investments when they couldn't find jobs.

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While losing a nest egg is painful at any age, it's particularly difficult for older people who are closer to retirement and have less time left to rebuild. Still, financial planning experts say there's no reason to lose hope.

"It's never, ever, too late to start," says Scott Gerlitz, a financial adviser with Edward Jones in Calgary. "It's understandable for people to feel discouraged when they've experienced major losses and now have to start all over again, but the reality is something is better than nothing."

So what would Mr. Gerlitz recommend for older Canadians who are rebuilding their retirement fund?

50-somethings

For people in their 50s, Mr. Gerlitz suggests taking full advantage of RRSP contribution room.

"These people still have 10 or so years to save, are likely earning the highest income in their lives, plus the kids are gone and have probably finished university," he says. "So there's plenty of opportunity for them to get back on track by taking advantage of about 10 years of tax-free growth and the significant tax refunds from an RRSP."

As far as portfolio construction, Mr. Gerlitz says this group should lean toward stocks with a track record of consistently paying increasing dividends, such as Royal Bank of Canada or the Canadian National Railway Co.

Early to mid-60s

People much closer to retirement - say, those in their early to mid 60s - should build an income-generating portfolio with a greater focus on fixed-income investments such as bonds or GICs, with some dividend-paying stocks added to the mix.

"But again, at this stage the stocks should be those with increasing dividends," says Mr. Gerlitz.

70-somethings

For those in their 70s, Jamie Golombek, managing director of tax and estate planning for Canadian Imperial Bank of Commerce's private wealth management arm in Toronto, points to an insured annuity. This investment combines a life insurance policy with an annuity that pays a monthly income for life.

"It's a strategy that doesn't get a lot of attention but is something that can be very effective for someone in their 70s who is in relatively good health," says Mr. Golombek.

Life annuities purchased outside of a registered plan get favourable tax treatment - only a portion of the income is taxable. But because capital put into an annuity stays in the annuity, a common worry among investors is that they might die early, having had little chance to enjoy their money and leaving nothing for their family.

"An insured annuity protects against that by replacing the capital you used to buy the annuity," says Mr. Golombek. In other words, the life insurance policy preserves your estate after you die.

This strategy also provides a way for recession-impoverished Canadians to borrow money to put into an annuity, says Mr. Golombek, since the life insurance policy can be designated to repay the money borrowed for the annuity.

Budgeting, and working longer

Patricia Lovett-Reid, a Toronto-based senior vice-president with TD Waterhouse Canada Inc., the investment arm of TD Canada Trust, says that in addition to rebuilding their retirement fund, people who lost their savings may have to consider working longer.

"It's a brutal fact, but it's something you may have to do," she says. "Most of us didn't see the market downturn coming, but it did and now it's time to take corrective action."

For those who have gone through most of their life without a budget, now is the time to sit down and crunch the numbers, says Ms. Lovett-Reid.

"Without the foundation of having a budget, you leave a lot to chance," she says. "And if you've already been beaten by chance and don't have the luxury of another 30, 40 years to rebuild your portfolio, then this time you really, really need to sit down and take the time to understand your cash flow and expenses."

Mr. Gerlitz at Edward Jones cautions against being too eager to play catch-up by jumping without thinking into high-risk investments.

"Oftentimes when clients are on the rebound, their eyes can become bigger than their stomachs and they take on a larger degree of risk than they should," he says.

Given their shorter investment period, older Canadians should take a measured and steady approach to rebuilding their portfolio, says Mr. Gerlitz. As a first step, he recommends consolidating investments with one financial institution to ensure investors are getting retirement planning advice based on their complete financial situation.

"From what I've seen over the years, the people who have been able to build the best financial plan are the people who never quit," says Mr. Gerlitz. "So the best advice I can give is to just keep planning and building your retirement savings despite the economic winds, and always have faith that the future will be better."

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