Good for you! You have turned your attention to the ever-important topic of how to provide yourself with a decent retirement income.

First you need to define your objective. What sort of retirement lifestyle do you want? Stay at home and read a book? Extensive international travel? Next, what is your risk tolerance and investment style? Note that your health and other factors may cause you to adopt a more conservative style than you would really like. You should also consider what sort of living space do you have/want? Have you already down-sized, or is that still a future consideration?

And finally, in devising your retirement cash flow, are there expenses that need to be trimmed? A new car every two or three years might have been okay during your peak earning years but now a more pragmatic approach is needed. And, be objective. Is your living space more than you really need?

It is absolutely critical that you discuss the above issues and other related matters in depth with your spouse or living partner.

YOUR EARLY LEARNING CURVE
Turning to investment, the keys to success are knowledge and good advice. Selecting the right investments, judging timing and knowing when to make a market move require knowledge, confidence and skill.
In the early stages you are best to read as much as you can and work with an advisor in making your market moves. First off, you can never read enough; not just market history, investment technique and related base knowledge, but the ongoing stream of market intelligence that will guide your investment decisions.

Our local Public Library has an excellent collection of reference texts to get you started. For day-to-day market news, there is an overabundance of sources available. Most financial professionals start their days with a number of these publications, and you can too.

For example the Globe & Mail, the Financial Times (Canada), CBC News – Business, Financial Post, Canadian Business, Canada.com, MoneySense, Huffington Post – Canadian Edition,The Economist, The Australian Financial Review, Barron’s, The Wall Street Journal, and Investor’s Business Daily. Also, specifically geared to the risk manager or investor are Morningstar and S&P Global Ratings

TAX IMPACT
A cost that cannot be ignored and requires careful management is the income tax on funds you withdraw from your investments and savings plans. You are best to work with an accountant experienced in managing pension income and transitioning from RRSP’s, RIFF’s, TFSA’s and other tax strategies.

SELECTINGAN INVESTMENT ADVISOR
Having acquired some basic knowledge, your best bet is to build a relationship with a reliable investment advisor. Certainly, you can act on your own if you want but an advisor can be very helpful in teaching you the basics of the markets and setting up your initial portfolio.

It is vital that your advisor earns and maintains your trust. Most financial advisors are absolutely trustworthy but it is good to be on your guard. After all, it is your money that is at risk. Your advisory relationship should be at arm’s length and definitely not a friend or relative. Hard as it seems, there may come a time when you have to fire your advisor.

Your advisor might be at your bank or credit union, brokerage firm, or an independent advisor. Note, though, that whomever you choose will have personal biases and corporate pressures that come to bear so be prepared to ask questions if you do not understand a particular investment decision or just want to learn more about the market.

TYPES OF INVESTMENT
Immediate Annuities are agreements where, in return for a lump sum payment, an insurance company guarantees you an income stream, usually for life. The guarantee is as strong as the quality of the insurance company that issues it.

Bonds are instruments you buy as a loan to a government, or a corporation. The borrower agrees to pay you interest for a set amount of time and when the bond matures your principal is returned to you.These are generally low risk and consequently have lower interest rates.

Exchange Traded Funds, or ETFs, are portfolios of assets especially designed to track or parallel the movement of a stock or bond index, such as the S&P/TSX Composite Index, FTSE 110, S&P 500, the Nasdaq-100 Index, Barclays Capital U.S. Government/Credit Index, etc. ETFs trade just like stocks, except there is the advantage of built-in diversification. They are not actively managed except to bring the fund’s performance in line with the index.

One factor in their favour is that ETF administrative costs are low, as little as one-quarter the cost of administration for an actively managed portfolio, such as a mutual fund. Trading activity is considerably reduced compared to the typical mutual fund, producing less taxable capital gains (irrelevant in a tax-deferred retirement account) and a more efficient return on investment. ETFs are particularly useful in retirement portfolios, as investors have recognized the importance of asset allocation, rather than individual stock selection, and usually have an investment horizon of 10 years or more.

Mutual Funds are professionally-managed portfolios of stocks and bonds. Each fund is intended to accomplish a specific investment objective such as high growth, balance between growth and risk, income, and variations between these categories.

Retirement income funds are a specialized type of mutual fund. They automatically allocate your money across a diversified portfolio of stocks and bonds, often by owning a selection of other mutual funds. The investments are managed with the goal of producing monthly income which is distributed to you.

Some funds have an objective of producing higher monthly income and may use some principal to meet their payout targets. Other funds have a lower monthly income amount combined with a goal of preserving principal.

With a retirement income fund, you retain control of your principal and can access your money at any time. Of course, if you do withdraw some of your principal, your future monthly income will subsequently go down.

Stock market investments are typically the purchase and sale of common and preferred stocks representing proportional ownership in a corporation. Holders of preferred stocks are in a preferential position regarding dividends and liquidation.

Owners of common stock benefit through a combination of appreciation – the increase in the price of the stock in excess of the price paid at purchase – and dividends. Stocks are usually bought and sold through representatives of brokerage houses acting as agents for their customers who receive commissions for their service.

Rental Real Estate can provide steady income but there are risks and expenses that need to be taking into account. As well, a certain amount of hands-on participation may be needed (e.g. maintenance) of your rental property.

A Real Estate Investment Trust, or REIT, is basically a mutual fund that owns real estate. Professionals manage the properties, collect rent, pay expenses, collect a management fee for doing so, and distribute the remaining income to the investors.

Closed-End Funds are higher risk investments appropriate for more experienced investors. The majority of closed-end funds are designed to produce monthly or quarterly income. This income can come from interest, dividends, covered calls, or in some cases from a return of principal.

Dividend Income Funds own and manage dividend paying stocks for you. Dividends can rise each year if companies increase their dividend payouts—but in bad times, dividends can also be reduced, or stopped altogether.

A Total Return Portfolio is specifically structured and managed to yield a long-term rate of return plus an income stream. You will need to follow a prescribed set of withdrawal rate rules that will typically allow you to take out 4-7 percent per year.

Whatever type of retirement planning or investing you do, the one common factor is caution. It is best not to put all your eggs in one basket. And sometimes the cliches are true: if it’s too good to be true, then it probably is.

This article is not intended to advise on investments. The sole purpose is to familiarize readers with some common terms and concepts related to investing.

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