The investing puzzle
Fitting together the pieces for a successful retirement is a lifelong effort, and strategies should change with your age
There's something to be said for mapping out your financial future - socking away what you can while working toward finally kicking up those feet, and letting your RRSPs and other investments and savings take care of you and your family.
There's also something to be said for taking into account the many curves that can be thrown your way - from job losses to economic downturns to health problems or having to care for ailing relatives.
While there's no paint-by-number way to approach RRSPs, there are some timeless guidelines based on the various stages of life and how far you are from retirement.
Many financial experts agree that even in tough economic times like these, you should never stop contributions except in the most dire of circumstances, and should revisit your portfolio regularly.
"People are saying, 'I've had one hell of a roller coaster this past year," says Andrew Pyle, a wealth adviser for Scotia McLeod, Tucker Wilson Group in Peterborough, Ont. "A lot of people with plans set up nine or 10 years ago are re-evaluating them, and you should be re-evaluating them anyway."
Lee Anne Davies, Toronto-based head of advance retirement strategies at RBC, says market volatility make it all the more important to meet with your financial adviser. "People are more interested in guaranteed types of approaches, such as GICs, and they're also more concerned over whether they should put more money into their investments," she says.
Harold Heppell, senior manager, investments, at Laurentian Bank in Montreal, says that despite the economic gloom, Canadians recognize that it may be a good opportunity to invest - especially if retirement is far on the horizon. "The best strategy in the current context is, whether you're 20, 30, or 40, or just five years from retirement, keep a cool head, and talk to your adviser and don't react on emotions," he says.
Whatever your stage in life, here are some tips to finding the right pieces for your RRSP puzzle:
Teens to mid-30s
Fresh out of high school, college or university, young people are becoming savvy about what it takes to secure their financial futures - even though they're decades away from retirement, say the experts, who advise them to start investing early and often.
Ms. Davies notes that parents are helping kick-start the investing habits of their children, who are generally more educated than previous young generations about the benefits of RRSPs, and earning compound interest that can add up in the years leading up to retirement.
"These early years are a time to get young people into the investing habit, before they have a lot of obligations," she says. "When they start moving into the [mid-30s], they often carry more debt, a mortgage, have children they're saving for university for." Long-time investor Steve Mangal, 34, and his wife, Rachel Mangal, 33, don't have children yet and are renting a home in Mississauga, Ont., for now, but the couple has years of RRSP experience.
Mr. Mangal, a restructuring consultant for a global business advisory firm, has been contributing to RRSPs since he was 17, and doesn't have any unused room to carry forward; his wife, an event planner, is working on catching up.
Though they are more than 20 years from retirement, Mr. Mangal says he and his wife are "focused on the discipline of regularly contributing and investing." Instead of running for cover in these tough markets, they meet more regularly with their adviser at Scotia McLeod's Tucker Wilson Group to review their portfolios, which he says "are on the aggressive side" - heavy in equities, at about 70 to 80 per cent, with the rest in fixed income.
Investing experts say young people can generally afford a higher-risk portfolio. "Time is always the best friend for people in their twenties" and early thirties, says Mr. Heppell.
Mr. Pyle notes that investing strategies come down to individual habits, goals and dreams, and tolerance for risk. "Generally, at 30, a person would be advised to have 30 per cent in bonds, 70 per cent in equities, because they have ability to withstand shocks and have that much longer of a time span to recover."
Late 30s to early 50s
People who are 15 years or more from retirement have time on their side. But the so-called sandwich generation also bears big responsibilities - caring for children and saving for their education, paying for a mortgage and a car, and possibly caring for elderly parents, to name a few.
And with longer life expectancies and the scrapping of mandatory-retirement laws in most of Canada, pinpointing a precise time frame for retirement has become more of a guessing game.
Still, experts strongly advise that people in this age group continue their RRSP habit, capitalizing on investment growth while being risk-cautious (depending on your profile) and contributing as much as possible to your RRSP - taking out a lower-interest line of credit or RRSP loan if need be.
In this stage of life, "so much is going on in people's lives that we wouldn't want to see them stop saving for retirement, even though they may have so many priorities in life," Ms. Davies says.
"It's also the time to shift from just investing to getting more into strategy [looking at income-splitting with a spouse, for instance], and developing an entire financial plan - they would very much want to confirm a will and powers of attorney are in place, for instance."
Most importantly, experts say, resist the temptation of cashing in RRSPs or panicking over the current market turmoil. Instead, they say, re-examine your portfolio, tweak it and adjust contributions based on any changes in your investor profile, because the market will eventually rebound.
Mid-50s to mid-60s
At this life stage, investors should focus on erasing or minimizing debt as a prime objective, as well as thinking about creating enough income from a portfolio to carry them through retirement.
While the general tactic is to think more conservative nearing retirement, "the pendulum can go the other way, too," says Mr. Pyle. "We're living longer, so you have to make that money stretch, to have a comfortable lifestyle.
"My fear for Canadians is some may be getting too conservative, buying these safe investment vehicles, that yields may be too small to support them.
"You're still going to have to take some risks in your portfolio, but they have to be smart risks," he advises. "Even if you leave equities off the table, you can look at the bond market. . [but] don't take unnecessary risks like extremely long-term securities like bonds."
Ms. Davies agrees. People who are about 10 years from retirement "should still be looking at great strategies to increase money through good investments," she says.
"When they move into retirement, it's not as if on Day 1 of retirement they need all their money. They will be investing over many years to come."
Special to The Globe and Mail