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Retirement mythbusters: The realities of retirement savings

Kim Parlee for

Canadians have a variety of misconceptions about their finances for retirement, from when they should start saving to the amount they will need, according to a TD poll. With the RRSP deadline coming up on March 1, 2013, time is of the essence to separate the myths from reality to help Canadians plan appropriately for their retirement.

While planning and saving for retirement is different for everyone, there are some basic fundamentals to keep in mind - like when to start saving, how much you need to save and weathering stormy markets. An important starting point is to determine what your ideal retirement lifestyle is like, then set financial goals and work with an advisor to develop a comprehensive plan to help you attain those goals. This will help you feel more confident about your financial future.

[More: Retirement rationalizations: 6 misconceptions about RRSPs]

Here are some myths about retirement financial planning and advice on how you can act now in order to achieve your dream retirement:

  • Myth: You should focus on eliminating debt before saving for your retirement.

The majority of Canadians (63%) think you should focus on eliminating debt before saving for retirement, and 66% also feel you should never retire with debt.

Retiring without any debt may not be realistic for some Canadians. It’s important to pay down as much debt as possible before retiring, but it’s also essential to strike a balance between reducing debt and saving for retirement. The first step is to review your current financial situation and your retirement goals. This is where an advisor comes in. They can help you formalize a financial plan that works towards eliminating your debt, starting with any high-interest debt, so you can get on the right track for your financial future.

[More: That magic number: How much do you really need to retire?]

  • Myth: In an economic downturn it’s safer to sell your investments and only put your money in guaranteed investments.

Forty-two percent of Canadians believe that putting money only in guaranteed investments or selling investments is the safest strategy during an economic downturn.

The reality is there will always be fluctuations in the markets, but that doesn’t mean you should sell and run. In times of market volatility it’s essential to stick to your plan and not react emotionally. Just as saving for retirement is a long-term process, having your money in the equity market is a long-term investment. An advisor can help you determine the right asset allocation for your portfolio, which will optimize potential returns without exposure to inappropriate levels of risk.

  • Myth: The older you get, the less money you will spend/need for day-to-day expenses.

Almost half (46%) of Canadians believe your expenses will decrease as you age.

Despite the fact that our expenses may decrease as we enter our retirement years, recent surveys of retired Canadians have told us that their daily expenses are higher than they anticipated. This may be because they haven’t taken into account everyday expenses such as dental and health care, or unforeseen expenses such as accidents or home repair. You should work with an advisor to estimate what your expenses will be in retirement, and calculate to ensure that you are saving enough now to pay for these future expenses when you probably will not be generating as much income.

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  • Myth: You don’t need to have money in the stock market to grow your retirement nest egg.

Only 36% of Canadians believe that investing in the stock market is an important way to establish a financially-secure retirement.

Similar to many things in life, when it comes to retirement savings, it’s important to ensure you establish a good balance. With the recent volatility in the markets, you can help protect your retirement nest egg by having a variety of investments and savings products, including equities, bonds, and savings vehicles such as an RRSP or TFSA. Your portfolio should also contain a mix of conservative and more aggressive investments, depending on the number of years you have until retirement and your comfort level, which will help you maximize your retirement savings.

[Read more from Kim Parlee on ] is a free personal finance and education site for women.

Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances.

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