|There are many reasons why you should convert between one third to all of your investment savings into a single pension plan for retirement:
You cannot afford to take a chance that you will outlive your money.
People are living longer than ever before thanks to medical advances – there is a good likelihood that you or a spouse (one of you) could live to age 100. If you retire around age 60, that is almost half a century of trying to invest in volatile stocks and bonds to generate an income to cover an ever increasing cost of living.
- A pension can remove the guessing by providing you with a fixed payment for life, payable to the death of the second spouse.
The rising cost of living could destroy your standard of living.
Annual inflation in Canada runs between 1% and 5% based on the past – this means the price of milk, gasoline, concert tickets, utility bills will constantly rise over the 40 years of your retirement.
- You need to have an income source that keeps ahead of this inflation – an inflation indexed pension is your best bet to keep your standard of living on track with the rising cost of living.
If you retire before saving enough (e.g. due to a health issue), you may never have the quality of life in retirement that you dreamed of.
- A pension will provide an enhanced payment each month, often achieving guaranteed rates of return that are hard to match in the stock and bond market. This greater cash flow provides you with more money to spend every day with no worries it will ever run out.
Your company pension could go bankrupt before your die.
Nortel. Abitibi Bowater. Enron. All big, blue chip companies where employees thought their retirement assets were in good hands. All have now been devastated financially. If you are 55, retiring with a company pension today, how can you feel comfortable saying that the company will be financially sound in 30 years? In today’s world, no one can say this anymore.
- If you create your own pension, the assets are separate from the company and only you control the pension. You are never exposed to company default risk. Better yet, the pension can be insured for even greater protection.