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Insights & advice

Investing during retirement

May 2022 – 15 min read

Key takeaways

  • Increasing life expectancies and inflation are 2 reasons you need to continue to invest and grow your money after you retire.

  • Even in retirement, you should consider keeping some money invested in equities

  • Diversification is more important in retirement

  • The investment options you choose depend on your risk tolerance, potential for return and when you’ll need to use the money

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The importance of investing in retirement

One of the fears many retirees have is outliving their retirement savings. You set aside a nest egg that you hope will provide the kind of retirement you’ve dreamed of. 

But what happens if you live longer than you expected? Or inflation begins to make things you buy more expensive than you’d planned? 

It’s important to have a strategy that lets you withdraw some of your savings while keeping a healthy portion invested.

Should retirees invest in equities?

It’s common for people to be less comfortable with investment risk as they get older. This often leads them to move their money to investments they think are safer such as bonds or guaranteed investments. 

However, equity investments have historically offered investors the strongest returns over the long term. Depending on your comfort with risk and how long it will be until you need to use the money, even in retirement, you may wish to keep some money invested in equities.

How much should you invest in equities?

Once again, this will depend on your risk tolerance and when you expect to use the funds.

It’s common to decrease your investment in equities as you get older. 

One rule of thumb suggests subtracting your age from 100, and the result is the percentage of your portfolio to invest in equities. The remainder (a percentage equal to your age) should be invested in fixed income investments. 

However, you should ask your advisor if this rule works for your situation.

Why diversification is so important

Diversification is important for every investor, but it’s more important if you’re retired. 

Chances are your income depends on your retirement savings and government pensions. A managed solution available through mutual or segregated funds can be used to diversify your portfolio by sector, geography and asset mix without the hassle or risk of purchasing and tracking individual investments on your own.

Choosing investments in retirement

Choosing which investment option depends on your comfort with risk, the potential for return and when you’ll need to use the money.

Features
  • Some funds can provide built-in diversification to help navigate market ups and down
  • Expertise of professional money managers
  • Many types of funds to match your risk tolerance and goals
Segregated fund policies
  • Some funds can provide built-in diversification to help navigate market ups and downs
  • Expertise of professional money managers
  • Many types of funds to match your risk tolerance and goals
  • You can choose to protect all or part of the amount you invest to help guard your savings at death and maturity
Stocks
  • Can invest in a single company
  • Can provide dividend income

Smart tax planning

  • In many cases your annual income in retirement may be less than when you were working. Therefore, you may be paying less income tax. But that’s still no reason not to make the most of every dollar

    To help accomplish this, if you have excess income from a pension plan or registered retirement income fund (RRIF), you could invest it in a tax-free savings account (TFSA), where it can generate tax-free income. 

    TFSA features:

    • Withdraw money tax free when you need it
    • Investments can grow tax free
    • Many investment options to match your risk tolerance and goals including mutual funds and segregated funds
    • Limit to how much you can invest each year
    • This type of account can hold mutual funds, segregated fund policies, stocks and other types of investments

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This information is general in nature and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.