Canadians face a number of concerns as they near retirement. Investors who are about to start decumulating are seeking sound advice to help them replace uncertainty with informed judgment. They worry about whether they have saved enough, how markets will behave and if their approach to investing should be more conservative in view of market volatility in recent years. They wonder, too, about withdrawal rates in retirement and how they will maintain their lifestyles.

According to Statistics Canada, the third of Canadians who are approaching retirement will rely on multiple sources of income in retirement—a mix of public and private pensions, as well as investments and earned income they generate themselves. At the same time, this generation is redefining retirement, with many choosing either to transition gradually from work or to continue working indefinitely—some out of necessity, others by choice.

If they wish to maintain their lifestyles in retirement, Canadians will have to figure out how to replace enough of their pre-retirement income to manage it. They’ll also have to consider the five key risks to retirement income and the kinds of personal savings vehicles they’ll require to address those risks.

The first risk is longevity: people may live longer than they might expect. According to the Canadian Institute of Actuaries UP-94 projected to 2015, a woman age 65 has a 50% chance of living to 86 and a 25% chance of living until 92. Her savings may have to last many years.

During that time, the second risk will be inflation, and even a low rate could have serious consequences. A 2% annual inflation rate will reduce an individual’s purchasing power over 25 years by roughly 40%.

The third risk has to do with asset allocation. What asset mix will generate sufficient returns, ensure that a retirement portfolio lasts as long as needed and allow the investor peace of mind? The starting point for most is a well-balanced portfolio.

Related to this is the annual withdrawal rate, the fourth risk. In the wake of the market volatility, many retirees felt added pressure to increase their withdrawal rates. But the truth remains that lower withdrawal rates make portfolios last considerably longer. An enduring portfolio is even more desirable considering the fifth risk to retirement income, unforeseen out-of-pocket healthcare costs.

To manage these five risks effectively, individuals must understand how different investments and income sources—be they pensions, government programs, annuities, mutual funds, fixed income securities or cash—come with different strengths and weaknesses. They also need to replace uncertainty with certainty by taking basic steps to create a retirement income plan. By planning to fund essential expenses with sure and stable sources of income, individuals can ready themselves for retirement more effectively.

Peter Drake is vice-president, retirement and economic research, with Pyramis Global Advisors.

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Copyright © 2019 Transcontinental Media G.P. This article first appeared in Benefits Canada.