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Q: I’ve been saving for retirement my entire working life. But now that I’m three years away from retiring at 65, I’m not sure what approach to take. I’ve gradually changed my asset mix from the typical 60-per-cent equities, 40-per-cent bonds mix to an increased percentage of bonds, but that’s the extent of my preparation. If my retirement goes beyond 20 years, I’m concerned I could run out of savings if I play it too safe, but I don’t want to expose myself to too much risk, either. What should my strategy be?
We asked Daryl Diamond, chief retirement income strategist with Dynamic Funds, to answer this one.
Canadians who reach age 65 may live, on average, about 20 years more for males and a little more than 22 years for females, according to 2023 Statistics Canada data. So, yes, you are correct to assume you’ll have at least 20 years ahead of you, if not more.
Your concerns are very common for someone approaching the point where their savings will need to shift from accumulation to providing reliable income, said Mr. Diamond.
“The key word in your question is strategy. It’s fair to worry about running out of money if you’re too conservative, just as it’s fair to want to limit risk as you approach retirement, especially when withdrawals begin soon,” he added.
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When people reference a portfolio such as a traditional 60-per-cent equities, 40-per-cent bonds mix, Mr. Diamond would define it as a “grow and sell” approach to retirement income. With this strategy, assets are grown over time and portions are sold to fund spending. While this can work, he noted that it also introduces new challenges in retirement.
“Market downturns, whether in stocks or bonds, become more concerning when withdrawals are required, as selling assets during periods of decline can permanently reduce future income potential.”
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Mr. Diamond suggested an alternative approach: Invest with the primary goal of producing income, rather than relying on asset sales.
By focusing on investments that generate predictable, consistent and sustainable income, you can meet your spending needs without having to sell assets during unfavourable market conditions. Actively managed high‑income funds and ETFs, for example, deliver a number of cents per unit each month – providing the cash flow retirees seek. With this strategy, retirement income comes from what the portfolio produces, not from liquidating it.
“This type of income-focused strategy, sometimes referred to as a paycheque-style portfolio, is designed to provide greater confidence and stability throughout retirement,” he said. “It allows you to spend the income your portfolio generates, while still maintaining exposure to growth over what could be a 25-year (or longer) retirement.”
Do you want advice on a financial planning or retirement issue that’s affecting you? Send us an e-mail.
