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Changing retirement plans in light of current fiscal climate

Adjusting retirement plans

As interest rates have risen dramatically, many Canadians are left wondering if they'll need to postpone their retirement dreams. The reality of higher interest rates can have a significant impact on retirement planning, affecting everything from investment returns to the affordability of debt.

In the first half of 2022, inflation hit 8%, the highest level in more than 30 years. In the same year, the Canadian stock market dropped by a little over eight per cent. So many investors saw their savings lose value at the same time as the cost of everything went up substantially.

However, while rising interest rates may present challenges, the decision to delay retirement should be approached with careful consideration and a thorough understanding of individual financial circumstances.

Firstly, it's important to understand the relationship between interest rates and retirement planning. Rising interest rates typically lead to lower bond prices and reduced returns on existing fixed-income investments. For retirees relying on fixed-income portfolios for income, this could translate to lower overall portfolio returns. Additionally, higher interest rates can increase borrowing costs, making it more expensive to carry debt into retirement.

For Canadians nearing retirement age, the impact of rising interest rates on investment returns and borrowing costs may necessitate adjustments to their retirement plans. Individuals may need to revisit their asset allocation strategies, considering a more diversified investment approach to mitigate the effects of rising interest rates on their portfolio. Similarly, those carrying significant debt may need to prioritize debt repayment to reduce their interest expenses and improve their financial flexibility in retirement.

However, the decision to delay retirement should not be based solely on the current interest rate environment. While rising interest rates may pose challenges, they are just one factor among many that influence retirement planning decisions. Individuals should take a comprehensive approach to assess their retirement readiness, considering factors such as savings, expenses, health, and lifestyle goals.

Moreover, the impact of rising interest rates on retirement plans will vary depending on individual circumstances. Canadians with substantial retirement savings and low levels of debt may be less affected by rising interest rates than those with limited savings and high levels of debt. Similarly, individuals with secure pension plans or other sources of retirement income may have greater flexibility in navigating the challenges posed by rising interest rates.

It's also important to recognize that retirement planning is a dynamic process that requires ongoing review and adjustment. While rising interest rates may present immediate challenges, they may also create opportunities for savvy investors. For example, higher interest rates may lead to increased yields on certain fixed-income investments, providing opportunities for higher returns for those willing to adjust their investment strategies accordingly.

Furthermore, delaying retirement is not the only option available to Canadians facing challenges due to rising interest rates. Individuals may explore alternative solutions such as adjusting their retirement income expectations, downsizing their lifestyle, or seeking part-time employment in retirement.

And having said all of that, delaying retirement may in fact be the right choice for some as it comes with certain benefits such as maximizing government led retirement programs such as CPP and OAS.

Seeking guidance from a professional financial planner can help individuals navigate the complexities of retirement planning and identify strategies to mitigate the impact of rising interest rates on their retirement plans.

While adjustments to retirement plans may be necessary in response to rising interest rates, there are a variety of strategies available to help individuals navigate these challenges and achieve their retirement goals.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett Millard is vice-president and a member of the executive leadership team at FP Canada, the national professional body for the financial planning industry. A not-for-profit organization, FP Canada works in the public interest to foster better financial health for all Canadians by leading the advancement of professional financial planning in Canada. 

He has worked in the financial advice industry for more than 15 years and is designated as a chartered investment manager (CIM) and is a certified financial planner (CFP).

He has written a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges they face in every stage of life. Enhancing the financial literacy of Canadian consumers is a top priority for Brett and his ongoing efforts as a finance writer focus on that initiative. 

Please let Brett know if you have any topics you’d like him to cover in future columns ,or if you’d like a referral to a qualified CFP professional in your area, by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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