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Boomers want a risk-free retirement

According to a new survey, boomers are still afraid to add risk—and higher returns—to their portfolios.


Volunteers ride on the “Boomer Express” on a float called “”It’s Time to Face Alzheimer’s” in the 122nd Rose Parade, January 1, 2011 in Pasadena, California. Boomers or baby boomers are people born during the Post-World War II baby boom between 1946 and 1964. One in eight boomers are at risk for Alzheimers disease according to the Alzheimer’s Association. AFP PHOTO / Robyn Beck (Photo credit should read ROBYN BECK/AFP/Getty Images)

If you haven’t heard by now, boomers suck at saving. Yet another survey shows that Canadians aged 45 to 64 aren’t socking enough away for their golden years.

The TD Investor Sentiment Survey found that two-thirds of Canadian boomers are investing less now than they did before the 2008 recession. According to the survey, 49% of respondents said they have less money than they did before the crisis, so they can’t save as much, while 27% said they’re worried about market volatility.

Another quarter of those surveyed said that they’re putting extra cash toward other financial obligations, such as paying down debt, taking care of aging parents and paying for their kids’ expenses.

The survey reveals that investors would be more inclined to save if they could do it risk free. Two-thirds of respondents would consider buying products with guaranteed returns, 50% want a minimal risk of losing their principal, 38% want low or no fee investing while 33% want an investment with a good track record.

While it’s better to invest than keep money under a mattress, buying risk free securities, such as guaranteed income certificates or low-yielding government bonds, could actually be riskier than purchasing higher returning products, says Ted Rechtshaffen, president and CEO of Toronto’s TriDelta Financial Partners.

“In today’s interest rate environment, I might argue that for many Canadian boomers, buying a GIC would be a risky investment,” he says. He doesn’t blame people for wanting a steady, guaranteed return, but, he says, “it doesn’t exist.”

If boomers only buy low-return investments, they could run out of money in retirement. “If you have $200,000 and need to draw $10,000 from it every year, at 3% returns, it will last 29 years,” says Rechtshaffen “At 7% returns, it will last forever.”

“At year 29, you would have roughly $470,000,” he adds. “If you are a 60-year-old couple today, there is at least a 33% chance that one of you will be around in 29 years.”

The bottom line is that investors should consider taking more risk in their portfolio. Rechtshaffen explains that the difference between 3% returns and 7% returns is the difference between a GIC-only portfolio and one that’s 75% invested in stocks and 25% in bonds.

This may not sit well with some boomers, but the reality is that old ideas around retirement don’t work in a low interest rate, slow economic environment. Rechtshaffen and other financial experts offer up several retirement saving suggestions in my recent Canadian Business story, “The new rules of saving.” Be warned: no one suggests playing it safe.

Also, check out Canadian Business‘s newest blogger, Goldie the Golf Ball, who regularly dispenses retirement savings tips.