A recent article in the Globe and Mail commented on The Dangerous Assumptions in Your Retirement Plan. Some of what was written was correct (you need to understand what is being assumed in your plan), and some was nonsense (when picking an average rate ...
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The Way You Calculate Your Retirement Plan Makes All the Difference

A recent article in the Globe and Mail commented on The Dangerous Assumptions in Your Retirement Plan. Some of what was written was correct (you need to understand what is being assumed in your plan), and some was nonsense (when picking an average rate of return on investments you can choose wisely).

Not all retirement calculation tools use a target rate of return, or the also-flawed 'Monte Carlo' simulation. As an advisor, I have tried most tools available, and finally found one based on an entirely different principle.

By 'stress-testing' your retirement savings plan against the sequence of returns that have been experienced historically, we can estimate the probability (likelihood) of having enough money or running out of money.

These tools look at the sequence of returns you would have experienced in each of the 'rolling periods' that have commenced over the past 100 years. This method is called aft-casting. And while it is not perfect either (past performance is not indicative of future returns), I am much more comfortable telling clients that their plan would have achieved their goals in 98 of the past 100 years, than I am saying that if we get x% rate of return you'll be fine.

The problem with picking out a particular average rate of return is that we now know that sequence of returns have a profound effect on retirement. The investment returns in the 5 or so years on either side of retirement have a profound effect on standard of living in retirement.

Budget Notes:

  • $5 billion+ in cuts.

  • Retirement now pushed to age 67.

  • The penny is dead.

  • You will be able to bring more back from the U.S. duty-free: Duty-free cross-border shopping limits rise this summer to $200 for 24-hour trips and $800 for trips of 48 hours or more.

  • Defence budget slashed

If you want any further clarification about how the new Budget might affect you, drop us an email.

Have a great weekend, spring is here (somewhat).

Brad