illustration of retirees saving money
December 10, 2020

Investing During Retirement

by Melissa Arenas, CFP | ATB Wealth

Retirement planning is a multi-year journey with a similar but unique destination for each retiree. You might envision leaving the workforce forever to travel the world or see retirement as an opportunity to transition into another profession. Your dream retirement lifestyle is up to you, but a detailed plan is key to making it a reality.

There are three key details in your retirement and investment plan: income goal, time horizon, and risk tolerance.

Set a realistic income goal. Expenses can easily creep up when not frequently reviewed. Tracking spending prior to retirement will help set a realistic income goal and ensure you can maintain your preferred lifestyle. A detailed retirement budget takes all the financial guesswork away. You may need seventy per cent of your pre-retirement income to fund your retirement lifestyle, but this will drastically differ depending on post-retirement debt levels, spending habits, and family considerations.

Outliving savings is one of the greatest risks to retirees today. If you retire in your mid-sixties, your time horizon, or period your savings need to last, is likely twenty or thirty years. Staying invested over this period provides your nest egg the opportunity to grow and keep pace with inflation, and reduces the risk of depleting it too quickly.

Naturally, with the transition into retirement the level of risk and portfolio fluctuations you feel comfortable with will decrease. The goal of your portfolio will also change from growth to income and preservation. These changes should guide your shifting investment strategy.

A diversified portfolio that focuses on balancing your nest egg’s stability and an acceptable level of risk is key to investment success. Investors’ emotional response during volatile markets can feel like a roller-coaster. Political changes, interest rate movements, widespread disease, and civil unrest can all trigger an urge to make a change. But aligning your portfolio with your risk tolerance is key to keeping emotions in check and stopping impulsive, emotional reactions that could negatively impact your plan. A timeline strategy can reduce the stress around normal market fluctuations. For example, funds providing income in the short term may follow a conservative investment strategy while funds providing long-term returns follow another. Having a cash reserve for emergencies provides flexibility and peace of mind. Properly done, diversification allows your portfolio to grow in positive markets while reducing losses during market downturns. Investors are often drawn toward investment fads, shares in an employer’s company, or companies based in their own country. Having a portfolio concentrated in one company, one sector, or even one country could be catastrophic to your plan in the event of a downturn. Diversification opens the door to opportunity and is achieved by investing in different sectors all over the world.

Ultimately, a retirement plan should be a basis for decisions, allowing flexibility and reflecting your lifestyle. The investment strategy is an extension of that plan aligned with your risk comfort level. Once in place, retirement goals become reality and success comes from the ability to use this guide to navigate this chapter of life.

Melissa Arenas is a Certified Financial Planner® and Senior Financial Advisor with ATB Wealth. For over ten years, Melissa has helped Albertans and their families navigate the world of investments and financial management.

This article is a summary by Melissa of a presentation she made to ARTA’s Pension and Financial Wellness Committee.