The vast majority of Canadian investors don’t know a large portion of their retirement income can be generated from investment growth, according to a survey by Russell Investments and Harris/Decima Retirement Research.

Most respondents (88%) were oblivious to the possibility that about 60% of their investment income could come from growth that occurs during retirement.

“Many Canadians still believe that once they retire, their investments retire as well. But by working with an advisor and investing in retirement solutions that can continue to grow during retirement, investors can feel assured knowing that close to 60% of retirement income can be generated during retirement,” says Fred Pinto, managing director of distribution services at Russell Investments Canada Limited.

The study is a follow-up of a previous retirement report titled The Russell 10/30/60 Retirement Rule. The report says given the right asset mix of bonds and equities, “investment earnings during retirement could come from 10% initial savings during the working years, 30% pre-retirement investment growth, and as much as 60% from growth after retirement — this all depends on having the right asset mix of bonds and equities.”

Similar sentiments are expressed by Peter Drake, vice-president, retirement and economic research for Fidelity Investments Canada. “The level of equity allocation that is sufficient to provide continued growth will depend on basic asset allocation — the higher the level of equity the more the potential for growth,” says Drake. He adds that it will be a function partly of the interest rate cycle and the annual withdrawal rate.

Drake says those who are not good at regularly rebalancing their asset allocation find life cycle funds useful, as they take care of the annual rebalancing on the investor’s behalf.

It is important to not only consider how much income you can get, but also how long you get it for, says Drake. “Think about the portfolio life, because of the lengthening of retirement due to factors like increased life expectancy and earlier retirement ages.”

Russell’s retirement report also highlights investors believe 49% of their retirement income will come from money saved during their working years. Meanwhile, investors think the growth of their pre-retirement savings will provide for 31% of income in their golden years.

This misplaced belief leads investors to “become too conservative with their investments and potentially miss out on generating that very important 60% of their investment income during retirement,” says Pinto.

Experts agree that investors should remain invested in some allocation to equities throughout retirement to protect against inflation and rising costs.

“Remember, it’s not the end of the investment journey when you retire,” says Pinto.

The report notes that most Canadian investors remain optimistic about their retirement plans despite economic volatility of the recent past.

“Only 37% of Canadians report some loss of confidence in their retirement finances, says Pinto. “In comparison, 53% of Canadians surveyed say their confidence level has not been impacted and 10% are even more confident that they’ll have enough in retirement.”

The negative impact of the recent economic downturn affected only 7% investors who sold their investments. Throughout the recent market downturn, 78% of Canadian investors said they kept their investments unchanged, while 16% said they took advantage of market volatility to increase their investments and seize new opportunities.

A telling comment on the investor confidence is that 29% of pre-retirees still plan to retire at 65 years of age, while 49% expect to retire before age 65. Only 22% of those surveyed expect to retire after age 65.

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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