Craft your retirement projections

Adrian Mastracci, Senior Portfolio Manager at Lycos Asset Management

Much has been written about the level of retirement readiness and capital needs required to fund that long-term family objective. I submit that the retirement projections have the answers. I am, however, puzzled by this key observation. Very few of the first time investors I meet have developed a recent retirement projection.

There is much talk and little walk of the talk around this subject. Even though retirement is a top priority for investors and their families. This is something I encourage everyone to mull over.

“How do you assess whether your retirement prospects are on target if you have no personal retirement target in mind?”

I summarize three more observations from investor meetings:

  • Plan for the possibility of retirement lasting 25 to 30 years, perhaps longer.
  • Understand the implications of portfolios receiving no saving capacity after retirement.
  • Prepare for escalating costs of care, say a retirement home, even if for only one spouse.

Planning three decades of dependable retirement income is becoming your new money management challenge. Especially, during times of continued low returns and volatility.

Retirement surveys keep popping up frequently with similar messages. Typically about how investors are not fully prepared for the long retirement journey.

Some may have accumulated too much debt or too few assets. Others may have incurred too much risk. Many may not be saving enough. Reasons aside, it is refreshing to meet investors who grasp the capital ballpark required to fund retirement. The main ingredient is the “retirement projection” or “capital needs” analysis.

My projection covers key aspects, such as:

  • Providing long-term retirement incomes, possible health costs and inflation factors.
  • Reviewing the family’s total expenses and cash requirements for projects and purchases.
  • Inclusion of income sources, like employment, pension benefits, real estate, CPP and OAS.
  • Assumptions for possible home downsizing, longevity, special needs and pension funding.

The analysis brings to light these important facts:

  • Capital estimate required to achieve your retirement goals.
  • Periodic saving capacity required by your investment plan.
  • Annual return estimates to reach and maintain your desired retirement lifestyle.
  • Whether your retirement goals are achievable or in need of adjustments.

You are wise to start crafting the family’s retirement projection. Begin around age 40, then refresh the assumptions every three to five years. That provides a customized investment roadmap tailored to each family.

Most investors do not feel comfortable navigating their retirement math. A solution is to engage a professional who is well versed with retirement projections.

Clearly, up-to-date retirement projections have the answers. It’s time for action if yours is missing in action.