Finance 6. Investments: assess risk and control it When it comes to your investments, your priority during retirement should be to control risk. The key word here is “control,” not “eliminate,” because that’s impossible when it comes to investing, and don’t think “avoid” either, because that suggests staying clear of all stock market risk, and that’s just not wise. Rather than being obsessed with risk, your goal in retirement should be to be deliberate about the risks you choose to take on in your portfolio. Doing your homework and understanding the possible risks behind any investment before you get into it is one way to do this. Diversifying your portfolio and avoiding “all in” bets on any one investment is another. Keeping a cool, unemotional attitude to market volatility is yet another. All of these things can help you adapt a defensive posture in your portfolio and ensure that the risks you do choose to take on are reasonable, well-thought-out and controllable. Keep in mind that as you grow older, your assessment of risk will change. Later on in retirement, it’s sensible to trim back your exposure to highly cyclical companies, speculative startups and “hot stocks,” while increasing your allocation to government bonds, guaranteed income certificates (GICs) and less volatile investments. There’s no rule as to when that shift needs to take place – so make sure to take stock of your own “feeling” about volatility and risk as the years go by. 7. Taxes: seek advice Many people go through their working years without thinking all that much about their taxes. They see their deduction on their payroll stub, they file their returns every April and they get their refund in May. And by and large, that’s about it. As we enter retirement, however, our tax situation can become more complicated, with deductions, credits and potential “watch outs” that we didn’t really have to pay attention to during our working lives. And the stakes become higher, too: with limited income, the amount of tax that we save can have a meaningful impact on our overall financial health. Which is why it’s a good idea to prioritize a thorough tax review and determine whether there are strategies that you can take advantage of, in order to reduce your tax liability in the years to come. When you do, make sure that you don’t rely too heavily on tax advice which you might read on the internet, see on TV or read in newspapers. Instead, seek out professional tax advice from a qualified, experienced accountant or tax lawyer with a track record of helping people in retirement. Sure, you’ll pay a little more for such advice. But it could end up paying for itself many times over. 8. Health care: assess your needs If you’re early in your retirement and reasonably healthy, or if you’re fortunate enough to be able to carry your employee health plan into retirement, then perhaps health care isn’t a financial priority right now. On the other hand, if you have a history of illness in your family, or if you only have the basic health coverage offered in your province, or if you travel a lot, then perhaps it should be given greater consideration. In some cases, it may make sense to purchase additional health-care coverage to supplement the standard coverage that you get from the government – for expenses such as optometry and glasses, dental care, hearing aids, massages, psychologists, orthotics, medical supplies, dieticians and the like. Depending on your personal circumstances, it might make sense to check out critical illness insurance, which can offer a financial cushion if you’re diagnosed with cancer, heart disease or other serious illnesses. Some retirees might also want to look into long-term care insurance, which can provide coverage for at-home nursing, extended care and similar expenses. One particular note for snowbirds: pay attention to what your province covers when you’re out of the province. We’ve all heard horror stories about how costly health-care emergencies south of the border or overseas can be. Do yourself a favour and get a policy that covers travel. The money which you spend on this could end up saving you a fortune. Review existing provincial health-care coverage and purchase supplemental coverage, if needed Explore critical illness insurance, particularly if you have a family history of serious illness Investigate long-term care insurance If you spend time outside of Canada, get a comprehensive travel policy Conduct a tax review of your finances Review your individual tax situation with a qualified accountant or tax lawyer Take advantage of specific deductions and credits which you may not have been able to use during your working years Get in the habit of thinking risk first, and being honest with yourself about how much risk you’re actually taking on when you get into a given investment Assess your own personal risk tolerance: how do you feel about the possibility of financial loss? Trim back speculative, “high-risk, high-reward” positions accumulated over the years 32 | www.snowbirds.org
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