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Peter Andreana, a financial planner, sees a lot of meltdown refugees nearing retirement trying to make up for lost ground by shooting for high returns.

There was a time not long ago when a financial adviser could look a client straight in the eye and say a retirement portfolio could average a return of 9 per cent each year. It was reasonable to expect a mix of safe bonds to generate about 5 per cent and stocks to do the heavy lifting with double-digit gains.

That ended with the global financial meltdown of 2008 when equity market values were slashed in half and interest rates dropped to near zero to keep money markets from freezing.

Yet, claims of risk-free double-digit returns continue to come from some corners of the investment industry. "It's incredibly frustrating," says Peter Andreana, a financial planner and partner at Toronto-based Continuum II. "It's really hard for someone to hear some other person say 15 per cent and to hear me say 7 per cent."

He says he's seen a lot of meltdown refugees nearing retirement trying to make up for lost ground by shooting for high returns. "That can't apply to someone that's near or in retirement. You can't take more risk to chase returns when you have a bucket that is only emptying," he says. "As you get closer to retirement you've got to become more conservative because you've got to be sure that money is there when you need it."

People first, return targets later

Mr. Andreana specializes in what is called pension-style investing. Instead of chasing returns each year he establishes a strategy that focuses on how and when a client wants to retire – also known as a time horizon – and then establishes targets. "Ultimately, that means focusing on downside protection," he says.

The strategy and return goals depend on the individual. All strategies involve a significant investment in fixed income for safety. For clients between 20 and 40 years old he recommends putting at least 20 per cent of the portfolio in high-quality bonds and money market instruments such as guaranteed investment certificates (GICs). As they get older, and the time to draw income comes closer, the fixed-income portion is increased. For baby boomers in or near retirement he recommends 50 per cent. "You need to have that element of fixed income to weather those storms that will come, when they come," he says.

Safety has its price

Being safe could be disappointing to some investors.

With bond yields at rock bottom and no hope in sight for central banks to begin raising their benchmark rates, Mr. Andreana says he expects fixed-income returns in a pension-style portfolio to average less than 3 per cent annually over the long term.

He says equities are generally too unpredictable for pension-style investing but are essential to producing a decent overall return. Young people are advised to hold up to 80 per cent of their portfolios in equities while older investors are encouraged to keep their equity portion to 50 per cent. In all cases the equity investments are diversified and risk can be adjusted according to the individual investor. "We don't stray too far outside of that 7 to 8 per cent in terms of the [equity] portfolios we are looking to put together because we're not prepared to take on more risk."

Since young people with longer time horizons can take on more risk, equity returns are expected to be higher but as they get older and risk is lowered, returns are generally lower.

Mr. Andreana says the key to setting return targets is to err on the side of caution. "I don't want to be sitting down 20 years from now saying we were hoping for 8 [per cent] but we only got 6. I want to say we were planning for 5 but we got 7 and a half," he says.

Going ultra-safe with annuities

Since the meltdown more investors are taking safety a step further by putting their money in annuities – insurance products that guarantee fixed returns with the principal. "After you purchase that annuity, that locked-in principal and interest amount you receive does not change with market conditions," says Simon Kay, president of IPS Insurance.

"Every single month you receive a payment from the first month until death and it is going to have the exact same amount of principal capital return and the exact same amount of calculated interest. If you are 70 today it's going to be the same when you're 90."

Like any insurance product, terms depend on the individual. As an example, Mr. Kay says one of his 71-year-old clients invested $300,000 in an annuity and receives $2,000 a month.

Safety has its price but he says a tax-efficient annuity can help produce annual returns of as much as six per cent. "That is attainable with minimal risk. When you get into older ages where there is a fixed income and a limited amount of money and we've got to squeeze everything we can out of it and can't take any risk – you've got to live with 2 or 3 per cent."

Of course, as a guaranteed insurance product there's little chance an annuity will exceed its return goals even if the markets perform very well. For that reason Mr. Kay suggests investors put only part of their savings in annuities to complement a broader portfolio.

He also stresses one hidden risk with annuities as well as with conventional retirement portfolios: inflation. He doesn't see big cost of living increases in the near future, but he says an annuity can always be indexed if inflation becomes a threat. "At the end of the day when you run the numbers inflation doesn't have a huge impact."