Blogs & Comment

How to avoid the 3 retirement risks

When you reach retirement, how will you live off your nest egg? If you have an inflation-adjusted, defined-benefit pension plan accumulated over 25-45 years of working, your worries are minimal. Others have some planning to do to.
As Moshe Milveky and Alexandra Macqueen recommend in their recently published book, Pensionize Your Nest Egg, most people headed toward retirement will have to think about covering off: i) inflation risk (loss of purchasing power over retirement period), ii) sequence-of-returns risk (stocks go into bear market as you start withdrawals from capital), and iii) long lifespan (possibility of outliving your savings).
Converting all retirement savings (RRSPs etc.) into a systematic withdrawal plan (typically invested in stocks and bonds) leaves exposure to the second and third risks. What would help is converting part of your retirement savings to annuities — which provide a guaranteed monthly income for as long as you live. Inflation-indexed annuities can also address inflation risk (as can stocks, real-return bonds, and real-estate holdings).
But many people dont understand annuities very well. The Milevsky and Macqueen book may help in that department. There is also a good interview with Macqueen on Todays economy blog.