An expert says investors focused on retirement should look to mitigate the different types of risks they’ll encounter throughout their lives while keeping in mind that Canadians are living longer but still retiring at roughly the same age as previous generations.
“In Canada, the average person is going to spend 20 to 30 years in retirement,” Nick Nefouse, global head of LifePath for BlackRock, told BNN Bloomberg in a Thursday interview.
“So, it’s a very long time period, and what we’re finding in Canada as well as in other developed markets is that people aren’t necessarily working longer. Most people are still retiring in their mid-sixties, and then we have 20 to 30 years to plan.”
Nefouse said that the recent shift away from defined benefit retirement plans, which were mainly the responsibility of employers, to defined contribution plans, managed by individuals, has led to “a lot of confusion” when it comes to retirement planning.
He said that it’s crucial for investors to start saving early to maximize their retirement income, and to recognize how market risks impact investors differently as they age.
“This is a multi-stage problem. We have to have people invest when they’re young for growth, and we’ve got to add more protection around the point of retirement, because we can’t just take more equities for the sake of taking more equities,” he explained.
“If you do that, then you increase different levels of risk, so we have to balance risk out over a lifetime.”
Nefouse added that investors need to understand that there are risks beyond volatility in markets, particularly when it comes to young investors just starting out.
“A lot of times we think of risk as only market risk, but the risk for a young investor isn’t really market risk, it’s not saving early enough or not saving enough,” he said.
“When you get closer to retirement, we have these really tough risks; things like sequencing risk – that’s what happens if I hit bear market right before I retire.”
Nefouse said the most impactful thing investors can do is simply save more money, which can be achieved by treating retirement investing as a small daily task.
“I like to make the analogy like health or fitness,” he said.
“We can make little steps every day to walk 10,000 steps or to work out… or to eat well; we have to look at retirement the same way.”