Many Canadians are concerned about their finances. This applies to people of all ages.
A survey titled The Financial Comfort Zone Study was conducted by Credo Consulting Inc. It appears 6,000 Canadians have been surveyed already and that number will double during the next six months.
The biggest worry Canadians have about their future is running out of money during retirement. About half of those aged 55 years or older rate running out of money during retirement as a medium or strong concern.
Younger Canadians concerned more
Surprisingly, younger Canadians are more concerned than their older counterparts.
Just over 60% of Canadians under the age of 55 have a medium or strong fear that they will not have enough funds to support them during retirement.
One statement referenced: “I feel a sense of defeat when I think about my finances.” Just more than 30% agreed that was a medium or strong concern.
The results of this survey can be interpreted as a potential failure of investing and financial planning.
The blame should be shared equally between clients and their investment advisors.
My recommendation is to change the benchmark of how you gauge your financial success. Change your focus from being investment centric to results oriented.
The real issue is not your investment performance from year to year. What is critical is how the continued growth of your portfolio will be able to provide your desired retirement lifestyle.
Too much focus on annual returns
Too much focus is placed on annual investment returns. In the long-term, investment returns are important, however in the short term, they can be misleading.
For example, if this year you have particularly good investment returns should you celebrate? Not necessarily, because maybe this year is just a particularly strong year for stock market returns.
Investment returns ebb and flow annually and being pleased or upset with investment returns year-to-year is nothing more than a deflection.
“Goal based” investing focuses on your ultimate investment goal like retirement, funding your children’s post-secondary education or purchasing your next house. Investing is simply a means to an end.
Always maintain a focus on your ultimate objective and avoid the “noise” of normal market volatility.
This is often easier said than done.
In my opinion, the best way to refocus is with annual cash flow projections measured against a specific financial objective.
If you are planning to retire in 15 years then cash flow projections will monitor your progress towards that end.
This is what clients and their investment advisors should focus on.
Many of us worry
The main thing learned from this study is many of us worry.
Logically that could be understandable because fewer of us have employer pensions than in previous generations.
There is the potential to worry about not having enough money to spend during retirement. The perfect solution is to monitor retirement spending amounts by completing cash flow projections.
Being proactive at forecasting cash flow projections will give you a better sense of what lies ahead.
With a better understanding of the future you are less likely to worry.