Assessing Your Retirement Time Horizon

Key Takeaways

  • You should plan for longer than the average life expectancy or retirement period to make sure you have enough money in retirement.
  • Many retirement investors overlook the cost of inflation on their investments over time, which can be risky if you aren't able to maintain your current purchasing power.
  • Investing too conservatively upon retirement could mean not earning enough investment growth to meet your long-term goals or keep pace with inflation.

A crucial aspect of investing is how long you need your investment portfolio to last—something we refer to as your investment time horizon. Many investors are also retirees or to-be retirees, which means their investment time horizon may amount to decades potentially. In this article, we'll refer to the investment time horizon of retirement savers as their retirement time horizon. Despite myths that your time horizon ends when you retire, you may need your money to work for you long after retirement. Here are some potential considerations for long-term retirement savers.

Life Expectancy May Not Be Long Enough

Many retirement savers plan to live up the average life expectancy, but understand that these are just averages. You may live long past the average life expectancy, which means planning for just the average could risk running out of funds in retirement. Instead, it may be best to plan for the longest potential time horizon rather than just for average. Planning for longer is especially important as medical advances could stretch your lifespan even further. Similarly, if you have a spouse, your combined retirement time horizons could span longer than just your own.

Beware Inflation's Impact

Similarly, if you live a long and healthy life, inflation can also eat away at the purchasing power of your portfolio over time. Many investors fail to realize how much of an impact inflation can have on their portfolios in the long-term. Since 1925, inflation has averaged approximately 3% a year.[i] If that average inflation rate continues, an investor who currently requires $50,000 from their portfolio to cover annual living expenses would need approximately $90,000 in 20 years and $120,000 in 30 years just to maintain the same purchasing power.

Investing Too Conservatively Could Pose Risks

Lastly, many people think once they retire, they should get out of the stock market or invest in low-yielding, safe investments instead. However, holding only "conservative" investments—like government bonds, money-market mutual funds or cash—could mean not achieving your long-term goals or even failing to keep pace with inflation. Instead, consider the period for which you are investing. For many people, retirement date is the just the beginning of a potentially 30-year retirement time horizon. To make sure you're able to meet your expenses over that time, you may need your investments to earn some growth in retirement.

Whether you choose to invest in individual equities, mutual funds, exchange traded funds (ETFs) or other securities, the right allocation for you likely depends on your situation and funds available. Regardless of the vehicles you use, your asset allocation decision—choosing which assets classes, like stocks, bonds or cash, to include in your retirement portfolio—is often a determining factor of your long-term portfolio returns. Make sure you aren't letting the fear of volatility and market fluctuations inhibit your ability to maintain your purchasing power and reach your long-term investment goals.

Fisher Investments Canada Can Help

If you're worried about your investments or how you should address the market in retirement, Fisher Investments Canada may be able to offer a second opinion. We have helped educate Canadian investors for years and can help assess your current retirement goals, risk tolerance and time horizon to explore your optimal asset allocation. To learn more about Fisher Investments Canada, call us today or download one of our educational investing guides.

[i] Source: FactSet, as of 31/05/2019. Rates of inflation are calculated using the Canadian Consumer Price Index (CPI) from 30/01/1925 – 30/04/2019.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns.