Employees who fail to learn how to manage their own retirement investments, and companies increasingly placing this burden on their workers, are combining to open a gap of under-funded plans and needy seniors, according to the largest fee only financial planning firm in Canada.

In recent years, many companies have moved away from costly Defined Benefit (DB) pension plans and chosen alternatives, such as Defined Contribution (DC) pension plans and RRSPs. “What this means is that now employees must be able to responsibly manage their own retirement plans and the sources of retirement income from personal savings,” says Karen Hall, vp, financial education and employer services at T.E. Wealth in Calgary.

Corporate governance guidelines have mandated that companies improve employee communication and deliver more investment information and financial education. There is little evidence, however, that poor employee investment behaviour is improving.

At the core of the problem is the inability of many Canadian workers to read and understand detailed plan summaries, pension statements, and investment performance numbers.

With this in mind, T.E. Wealth has created 10 simple tips for employees to help them retire on time:

  1. Live off your retirement income for six months before retirement and do the renovations and new car purchases before you leave (or have the money set aside);
  2. Continue building assets as a reserve for events like the rising cost of elderly extended care (and government cutbacks);
  3. Watch out for taxation costs if you decide to move to another province or country in retirement;
  4. If your retirement plan is just to work longer, leave a safety net for illness or family obligations that could incapacitate you and prevent you from working well into your sixties;
  5. Make sure your affairs are in order in the event of sudden death (wills, power of attorney, personal directives, etc.);
  6. Remember inflation! At 3% inflation your purchasing power halves in 24 years;
  7. Hold a cash position in cash-equivalent investments and short-term bonds or high dividend paying equities for immediate and ongoing cash needs;
  8. Protect against outliving your money. A portfolio of 40% equities is considered to be a reasonable amount for retirees, generating a balance of income and growth;
  9. If you expect to have a middle-upper class income in retirement, do not count on Old Age Security (OAS) when doing your planning. If you eventually receive OAS, consider it a bonus; and
  10. A couple with their income evenly split between the two, rather than all with one partner, will be in a better position to avoid having their OAS clawed back.

T.E. Wealth is a Canadian leader in fee-only investment counsel and financial planning for high net worth individuals.