Investment strategies based on changes in your life

A 'set it and forget it' investment strategy won't work for you because the only thing constant in life is change

A change in employment. Kids. Moving. Mortgages.

The only thing constant about your life is constant change. That’s why a ‘set it and forget it’ investment strategy won’t work for you — not if you want investment returns that will provide the financial flexibility to live your life and all your retirement years exactly as you want.

How change affects your retirement date, lifestyle and requirement for retirement income

• Great news! You’re going to enjoy retirement for many years. Most people can expect to live longer and healthier lives. So it’s prudent to plan to ensure you don’t outlive your income.

• You can retire when you want. For most occupations, 65 is no longer the mandatory retirement age. You can choose to work after age 65 and accumulate more money for retirement. Or you can continue working part time after retirement either to supplement your income or simply because you want to.

• Your company may want you to keep working. Older, more experienced employees are increasingly being viewed as a valuable resource. You may even be offered incentives to stay in the workforce after age 65.

• Don’t assume you’ll receive a ‘defined’ retirement income. Defined benefits pension plans are becoming less common. You may have to bear more responsibility for your retirement income planning.

How a flexible, lifestyle approach to investing lets you cope with change

A lifestyle approach to investing takes into account your financial needs and ability to save at the three main stages of your life:

• Ages 25-40 The savings years when your expenses are usually higher and you have less to invest. On the other hand, you have a longer time horizon to retirement so you can choose an aggressive investment strategy that includes more volatile investments that may go down in the short term but may produce higher returns in the long term. Be sure to maximize contributions to your RRSP eligible investments.

• Ages 40-60 The wealth-building years. Your debt is down or gone and you have more capital to invest. As your retirement nears, consider redirecting your portfolio into lower-risk, fixed income investments. Continue to make max contributions to your RRSP eligible investments.

• Age 60 and over The retirement years. You’ll likely tap into your investments for your retirement income. Focus on investments that preserve capital but also consider growth investments that can add to your income and protect against inflation.

An effective investment strategy contains many other elements, of course (like proper diversification and asset allocation). Your professional adviser can help you make the best choices for you, regardless of change.

J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc.. His column appears every Wednesday.

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