Retirement planning mistakes

The average life expectancy has increased from 47 years in 1900 to almost 78 in 2004. Do not underestimate how long you might be around the tables show that it could be longer rather than shorter, so consider investing your funds accordingly. Have you ever had the thought or the concern, Do I have enough money to last?

When people get concerned about their preserving money and having enough of it and wanting to keep it close to the vest, what types of investments do they often make? Usually lower-yielding investments. Instead of looking at other investment options including annuities, income funds or mid to long term GICs, they keep it into a short term cashable GIC or even worse, a low or no interest bank account.

If you can earn higher returns on longer-term GICs why would anyone buy the short term GIC? My response is, with the short term GIC the return is good for six months after which you have the option of reinvesting your money in another GIC or any other investment vehicle you choose. Although the return might be lower, these shorter-term investments facilitate the need for liquidity better than the long-term GIC.

On the other hand, longer-term fixed income securities typically provide for a higher income that can be helpful in meeting current living needs. For these reasons, it is very important to consider the trade-off between your living needs and your potential need for liquidity before you put your plan in place.

Everyone’s goals are different. As people age and get older, they might think that they should invest for a shorter and shorter time horizon because they are getting older. In some cases, this can be a big mistake. In a lot of cases, I advise that their investments should outlast their life expectancy.

Ultimately, you are going to either out-live your money or your money is going to out-live you. Assuming you have the financial ability to make this choice, I think that you would rather have your money out-live you.

Statistics suggest that the average person who reaches age 73 will live another 14 years on average. Assuming that life expectancies stay the same or increase and your life expectancy follows that of the average person, your portfolio at age 73 could need to keep working for an average of 14 years.

Therefore, if you want your money to last as long as you do, would it make sense to consider investment strategies to help you meet your living needs for another 14 years instead of 6 months or 12 months.

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