Finance BLIND SPOT: RISK Assumption: Now that I’m in retirement, I should reduce investment risk. Reality: You’ll need to take on some risk in order to stay ahead of inflation. It seems like common sense: if you rely on your investment portfolio to pay the monthly bills (as most retirees do), then you shouldn’t be taking on any big risks with your investments. Right? Well, yes. But there’s a difference between eliminating “big” risks and eliminating all risk whatsoever. Absolutely, unless your retirement portfolio is substantial and your income is secure, retirement is probably not the best time to invest in high-risk, high-reward ideas such as bitcoin, marijuana stocks, junior gold miners and similar investments. However, in a world in which retirement can last well over 30 years and inflation remains a threat, a portfolio that’s too conservative can be the biggest risk of all. The fact is, by shifting the bulk of your portfolio into government bonds, GICs and similar low-risk, low-return investments, you could be building a portfolio that fails to keep up with inflation over the long term. Remember: inflation is the gradual, steady increase in the price of goods and services over many years. And while retirees haven’t had to worry about it all that much lately (inflation is currently sitting at about 1.9% in Canada, and a little higher south of the border), over a longer time horizon, inflation has averaged about 3% per year – that’s higher than the return on most GICs and government bonds right now. Take a look at your portfolio – how are your assets split between equities and other, “less risky” assets such as bonds, GICs and similar guaranteed investments? Is that split appropriate for your life expectancy and personal goals? Have you overweighted bonds, GICs and similar investments because you’re concerned about market volatility? If so, you may be ignoring a big blind spot by swapping market risk for another, more significant risk: the risk of outliving your money. BLIND SPOT: HEALTH-CARE COSTS Assumption: I’m Canadian. My health-care costs are covered. Reality: Actually, there are a lot of costs that our health-care system doesn’t cover. Many snowbirds assume that because we’re Canadian, we don’t really have to worry all that much about health-care costs. By and large, that’s true – at least for the serious illnesses and well-known chronic conditions that we worry about when we think about getting sick. But our government benefits are only intended to provide a foundation for our health-care needs. Depending on where you live, and what kind of health-care coverage you have, you may still find yourself having to shell out for dental work, eyeglasses and prescriptions that aren’t on your province’s approved list of medications – all costs that are likely to increase as the years go by. And, if you’re fortunate to live long enough, long-term care and/or home nursing are two very common (and, unfortunately, very expensive) services that more and more retirees are looking for. One way to ease this burden is to stay healthy for longer. Remember the old saying about an ounce of prevention being worth a pound of cure: watch what you eat. Get some exercise – even if it’s a walk down to the grocery store. Get your eight hours every night. And please make sure to get your annual checkups, so that you can identify small problems before they become big problems. Depending on your personal circumstances (both health and financial), you may want to take a closer look at critical illness insurance, long-term care insurance and/or disability insurance. All of these can offer a further degree of protection against many of the expensive “bells and whistles” that basic government benefits weren’t intended to cover. If you’re interested, talk to a qualified advisor or planning specialist to review your options − such policies can be complicated and pricey, and it makes sense to review plenty of options before making any decisions. CSANews | SUMMER 2019 | 31
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