How to invest your retirement savings

February 21, 2013

By Sheryl Smolkin

If there was a money tree growing in every back yard, we wouldn’t have to worry about saving or investing for retirement. Our annual harvest of $100 bills would pay for everything.

But money doesn’t grow on trees, so once you allocate hard-earned money to retirement savings, you must decide on an investment strategy that will grow your account into the nest egg you need to retire.

Before deciding how to invest your money, you have to identify how much risk you can stomach. Your retirement goals, the number of years left to retirement and the amount of money you can tolerate losing are all factors that will influence the percentage of your portfolio allocated to various asset classes.

The Investor’s Education Fund has a simple quiz that will help you identify your risk tolerance. When I took the quiz, I found out I have a “medium” tolerance for risk which means I am most comfortable with a mix of bonds, stocks and fixed income investments.

In a Masters of Money blog on the same website, Globe and Mail financial writer Rob Carrick says one thing everyone agrees on is that you must get more conservative in your asset mix as you get older.

Carrick suggests that every five years or so you should think about ratcheting down the risk level of your portfolio. In practical terms, that would mean moving some of your stock market exposure into bonds and cash. Your evolving mix of assets in a registered retirement savings plan account might look something like this:

AGE	% IN STOCKS	% IN BONDS & CASH
25	85	15
30	80	20
35	75	25
40	70	30
45	65	35
50	60	40
55	55	45
60	45	55
65	30	70

However, financial experts do not advocate that older Canadians get out of the stock market completely. You still need some portfolio growth in the period when you are drawing down funds to pay for retirement, particularly if you live to age 90 or beyond.

Members of the Saskatchewan Pension Plan benefit from the investment expertise of independent money managers. Funds of members who have not yet retired are pooled in the Contribution Fund.

The Contribution Fund allows members to invest in a balanced portfolio or a short-term fund. The balanced fund investment strategy is to maximize earnings for members and minimize the risk, while the purpose of the short-term fund is capital preservation.

The balanced fund portfolio composition is shown below.

The average earnings of the balanced fund since inception in 1986 have been 7.86 per cent with returns of 8.45 per cent in 2012.

Accounts of members who have retired are pooled in the Annuity Fund.The Annuity Fund is invested in bonds and short-term investments. The strategy for this fund is to produce income to pay members’ pensions.

Have you checked recently to see if your investments are consistent with your risk tolerance? If so, send us an email to so*********@sa*********.com. Your name will be entered in a quarterly draw for a gift card.

And don’t forget March 1, 2013 is the deadline for contributing to the Saskatchewan Pension Plan and your RRSP for the 2012 tax year.

If you would like to send us other money saving ideas, here are the themes for the next three weeks:

28-Feb	Debt Reduction	How to eliminate debt
7-Mar	Airline points	Which kind of airline points are better?
14-Mar	Insurance	Getting a better deal on car, house insurance

financial planning, Money saving tips, pension payments, Retirement Income, Save for retirement, Sheryl Smolkin

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