People are living longer than ever before. That means your money has to live longer, too. So how can you invest for retirement?
Look ahead about 40 years. The first 30 years of that is the growth stage – that's when your priority is building your money. That often means a higher-risk portfolio, with stocks and high-yield bonds. The last 10 years of that is the consolidation stage, when your priority is keeping your money. That means lowering risk and investing more in safer assets, like bonds and cash.
One of the best ways to start building your money is by taking advantage of your workplace pension. Some employers, like the government, offer defined-benefit pension plans, where you get a specific amount of money when you retire, no matter what. But most employers offer defined-contribution plans. That means you're responsible for picking the investments in your plan – and what you get when you retire depends on how well they perform. So you need to think about what will get you the big returns over the long term.
You should also think about what your retirement needs might be. Will you want a lump sum of money waiting for you? If so, you'll want to invest in safer assets that preserve your money. If you want a regular income after you retire, invest in an annuity, which pays out a fixed amount every month. You'll already get an annuity in the form of Old Age Security, provided by the government. But that might not be enough. That's why it's important to build your money yourself, and to start early: so you can get the retirement you want.
Want to know more about planning your future? Visit Morningstar.ca.
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