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Baby boomers need to ease into retirement

Canada is on the cusp of a major generational shift as the first of the baby boomers hit retirement age in the next five years. The baby boom was the period that started after World War II and lasted until the mid-1960s, when much of the Western the world experienced a major population boom.

Between 1946 and 1965, Canada experienced a 20-year period where the annual number of births averaged 426,000, the highest on record for such an extended period of time.

Now, the first wave of those people will hit the traditional retirement age of 65 in 2011, and it will have a major impact on the whole country. It's expected by 2011 that people over the age of 65 will account for 15 per cent of the population, up from about 13 per cent today. However, that will rise rapidly, and by 2031, seniors will account for between 23 per cent and 25 per cent of the total population. By 2056, they will account for 25 per cent to 30 per cent of the population.

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Compounding this is the fact that Canadians are living longer and will need to make their savings stretch further. So, what's a boomer to do?

Financial experts say now is the time for boomers, many of whom are entering their peak earning years, to get their retirement plans in order. For those nearing 65, it's still not too late.

Debbie Ammeter, vice-president of advanced financial planning at Investors Group in Winnipeg, tells boomers it's a "really good time to become focused.

"Retirement is a big life transition. A lot of people ... don't give a lot of thinking to how their retirement is going to shake out till they are very close to retirement." She says there are two key elements to retirement: financial planning and life planning.

Assess retirement objectives
Now, she says, "is a really good time to try to start visioning what it is that you want to do in retirement." Only then, she says, will you "have a good understanding of what your retirement income needs will be." Do you want to travel? Stick around home? Spend time at your cottage? Work on a hobby? Start a business?

Ammeter notes that "some people will be very active after they leave their jobs and may still be spending a lot of money."

Once you have a general idea of what you want to accomplish in retirement, you can compare it with your retirement resources and determine if it matches or if there is a gap or it matches.

Build a financial plan
David Gunn, an investment representative at Edward Jones in Calgary, says retirement for boomers will be different than their parents. "I find that most people are going to plan to work part time," which will help reduce some cash-flow concerns.

Gunn says making a financial plan will assess whether you are on track. Take into consideration not only your personal savings and any income you will be earning, but also corporate and government pension plans. If you've worked, then you are entitled to Canada Pension Plan, and most Canadians will also be entitled to Old Age Supplement.

He says while there's no fixed formula for how much you will need in retirement, expect that you will need between 70 per cent and 80 per cent of what you earned while working to survive comfortably. "That's what we're seeing from our client base."

Examine your asset mix
Now is the time for boomers to check their asset mix. Most people reduce their exposure to equities as they age and get closer to retirement. However, Gunn says, with inflation hovering in the two-per cent to three-per cent range, it's likely you will need to continue holding equities, even as you get older. "People think in retirement you cash everything out. That's not the case." So don't panic and start selling off your holdings before you even get near retirement.

Adrian Mastracci, an independent, fee-only investment adviser with KCM Wealth Management, in Vancouver, adds that diversification is key to avoid getting slaughtered in the market. You need to avoid taking large capital losses, especially as your approach retirement, he says. By having your investments spread across the major asset classes, you will reduce your risk.

Succession plans
Gunn says now is also the time for boomers to start thinking about succession planning and transferring assets they've accumulated to the next generation. That means tax planning is essential. Boomers have "accumulated a large amount of net worth or assets. They need to think about how to transition a portion of that to charitable institutions or their children." With some of these assets, he says, there will be "major tax consequences."

Ease into retirement
Mastracci urges boomers to ease into retirement. "A lot of people go into retirement not really knowing what to expect. Don't draw a lot of money out in the early years," he says. "Try to achieve some sort of stable income stream. Take is slow if you can."

Jim Middlemiss is editor of Canadian Lawyer magazine and co-author of Your Guide to Canadian Law. He's a frequent contributor to the National Post and Investment Executive.

-- Posted: Oct. 11, 2006
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