GUEST BLOG POST – WEI WOO, RESEARCH CAPITAL
We are very excited to have our long-time Friends of WSAC partner, Wei Woo, of Mackie Research, provide us with a guest blog post. Wei has been hosting Toonie Talk presentations here at our centre for almost 10 years and has always been a fantastic resource for our members.
Make sure to watch our e-newsletter and website Toonie Talks schedule that Wei will be hosting here at our centre!
THERE IS AN ONGOING RETIREMENT CRISIS:
This article speaks a lot about the ongoing retirement crisis which has only deepened since this article’s studies were conducted, with anxiety continuing to grow regarding the stability of their long-term retirement finances. No surprise given the volatile markets and economy we experienced within a short period of a few years. It started with the fastest market plunge we have seen during the 2020 Covid Recession, with many people selling their retirement investments at exactly the wrong time – before the fastest market recovery in history took hold. In 2021 it swung to greed and speculation, with even my own retired clients asking if they should own cryptocurrency and meme stocks, and in 2022 most of them crashed hard.
Finally, in 2022 with the teeth of the bear market, including the worst bond market since 1788, some retirees are again selling their portfolio at exactly the wrong time just like in 2020. The worst days and best days in the markets are often neighbours to each other. This comes down to risk management – knowing there will be fluctuations in the portfolio as part of the ride to achieve your long-term retirement income and estate goals, while still having a strategy to meet short-term cash needs, and knowing what portion of your money you are willing to invest to achieve the outcome you want. What we know is that the financial behaviour of retired investors is often more impactful on their own financial health than the markets themselves, during both times of fear and times of greed. This is why behavioural coaching is important, especially when trying to make sense of the barrage of daily information about the markets and economy thrown at us.
WE HAVE TO ADAPT TO FINANCIAL REALITY
People are living longer which means money needs to last much longer, personal health care costs are going up while hospital wait times are going up, and inflation is now at a 40-year high making it go way beyond what most retirees’ long-term financial plan assumptions have calculated. A financial plan is only as good as the assumptions and variables, and inflation potentially derails the outcome of a retiree’s financial goals. Although inflation slowly is moderating overall, items like food prices will likely continue to go up long term, causing food banks to be extremely stretched thin, even now.
Moreover, my own experience is that some of my retired clients had to sacrifice some of their own retirement investment assets with more than they anticipated, due to unforeseen events in helping out family members.
This all comes down to a few major questions, such as, how long is my money going to last with inflation at these levels? Will I outlive my money? Do I need to make major lifestyle adjustments to make sure my retirement income is more sustainable? What amount will be left for my children or grandchildren? Especially given that 55% or more of Millennials need a significant inheritance to meet their own financial goals.
FORTUNATELY, THERE ARE NOW NEW STRATEGIES TO ENHANCE AND INCREASE INVESTMENT INCOME
While Guaranteed Investment Certificates may seem tempting to hide in, especially given this particular painful year, unfortunately, GICs are unlikely to keep up with inflation, as historical returns usually fall behind the rising cost of living.
The last thing to keep in mind is a sequence of returns risk. During the decumulation phase of retirement (taking money out of investments), when you retire really does matter. Somebody who retired and then have their first 5 years with bad annual returns, even if later years’ returns were great, will end up a lot worse and may run out of money, than the same person who had the first 5 years of retirement with decent investment returns, even if later years returns were bad, resulting in having a much higher final year amount with less chance of outliving their money. This means retirement lifestyle may need to adjust according to the environment we are in. The retirees of 1939 to 1979 generally had a more frugal standard of retirement living compared to those who retired between 1980 to 2021 for example, due to the economic reality.
Have questions about this article? Please feel free to contact me,
Wei Woo
Investment Advisor, CIM, EPC
Research Capital Corporation
Private Client Division
3481 Allan Dr. SW Edmonton, AB T6W 1A4
Office: 780 – 460 – 6628
Cell: 780 – 299 – 0760 “Retirement Crisis
By Wei Woo
