Toma una hoja cuadrada de longitud L y realiza las siguiente figura con las condiciones dadas:

Risk and retirement do not make a good mix9

As the prospect of retirement looms, protecting your wealth becomes more important than growing it. Investors must, therefore, grapple with the following three elements:

 Increased longevity and longer life expectancy, which means that nowadays Canadians must ensure that they have income for a lengthier period of time. We estimate the expected retirement horizon at about 25 years. And this number increases where there is a younger spouse or in those situations where the family’s longevity history exceeds statistics.

 Inflation which, if left unchecked, can erode retirement savings. Even if it stands at the relatively low rate of 2%, inflation reduces purchasing power nearly 40% over 20 years. To maintain their purchasing power, retirees must see to it that their income keeps pace with increases in the cost of living.

 Market volatility is a major risk factor. In terms of retirement savings, the order of investment returns has a determining effect on the duration of capital. Hence, for a same annual average return (7% in the following example), the capital will be exhausted at an earlier or later time, based on the sequence of returns.

RETURNS10

Sequence of returns where resources Age of retirees

will be exhausted +/- month

+7%, +7%, +7% 86.5

+7%, -13%, +27% 83.3 -38

-13%, +7%, +27% 81.1 -65

+27%, +7%, -13% 94.9 +101

In this instance, constant returns will make it possible for the investor to benefit from his/her capital until age 86. However, a downturn in returns at the beginning of the savings period will shorten the amount of time that capital will last, whereas higher returns at the start of the savings period will ensure that it lasts longer.

Assessing Financial Security

Retirement is an investment withdrawal stage in life. Being overly optimistic or pessimistic does not help to properly evaluate long-term financial security. A 3%11 _{net rate of return should be used to analyze 30-} year retirement period. It is also wise to do a number of simulations to determine various living costs as well as the impact of various projects on your long-term financial security.

9 _{Based on research conducted by Moshe A. Milevsky, Associate Professor of Finance at York University in Toronto} and Executive Director of the Individual Finance and Insurance Decisions Center.

10 _{Source: Asset Allocation and the Transition to Income, Milevsky & Salisbury, September 2006. Example based on} a $100,000 portfolio, from which a retiree withdraws $9,000 annually starting at age 65.

Debt and Retirement

Recent Statistics Canada data confirm that among those age 55 and over, one-third of the retired and two-thirds of the not-yet-retired report having some form of debt.12 _{Retirement usually coincides with a} drop in income and an increased reliance on savings. In these circumstances, having to manage debt can increase financial insecurity, both for retirees and those planning their retirement.

Consequently, Sun Life Financial’s 2013 Canadian Unretirement Index Report determines that only 27% of Canadians between 30 and 66 years of age expect to be retired at 66 (compared to 51% in 2008).13 Among those who responded that they expect to be working at 66, 63% said it was because they needed to while 37% said it was because they wanted to.

Retirement Income Sources

Canadian seniors’ income comes from public and private pension plans as well as personal savings and investments (see Sections IX and XIII).

AVERAGE INCOME OF CANADIAN SENIORS BY INCOME SOURCE14

(in constant 2010 dollars)

Description Income _($)

Income from public sources 

 OAS 6,200



 CPP/QPP 6,900

Income from private sources   Investments 1,300   Pensions and RRSP 11,100   Employment income 2,200

State-run pension plans (combined OAS/GIS and CPP/QPP) represented 41% of the total income of seniors in 2010. A third (33%) of seniors’ income came from private pension plans and RRSPs. The remaining 26% came from investment income (10%) and other sources (16%), including other market income and other government transfers.

QPP – Is it better to take the retirement pension at age 60?

The QPP retirement pension is reduced if claimed before the annuitant’s 65th _{birthday. This penalty will} gradually increase over the coming years (see Section XIII). This reduction can be avoided by waiting until age 65 instead of claiming the pension at age 60; however, the income is also lost for five years. Furthermore, postponing the retirement pension until age 70 makes it possible to increase the amount. Therefore, the question is: should you take the early retirement pension at 60 years of age, the normal retirement pension at 65 or the late pension at 70?

Once all of the QPP changes become effective in 2016, we can estimate that, on one hand, the pre- retirement profitability threshold will be age 71.15 Therefore, at age 71 there would be no difference between taking the annuity at age 60 or age 65 – the annuitant would receive the same amount of

12 _{Retiring with debt by Katherine Marshall (April 27, 2011). Product component No. 75-001-X, Statistics Canada} catalogue.

13 _{http://www.sunlife.ca/Canada/sunlifeCA/About+us/Canadian+Unretirement+Index?vgnLocale=en_CA.}

14 _{Calculations of Human Resources and Skills Development Canada based on Statistics Canada data, CANSIM} Table 202-0407, 2010.

15 _{This age could vary according to calculation assumptions such as the inflation rate (2.24% rate used) and annual} growth of the maximum QPP insurable earnings (3.25% rate used).

money. After age 71, it is more profitable to have waited until age 65. On the other hand, compared to the normal pension, the late pension profitability threshold will then be attained at age 78. Subsequently, the late pension alone would become more profitable overall.

Opting for the early, normal or late pension should also take in account various factors such as your health, marital status, the age of your spouse, your other income sources and the impact of any years without income on the final pension level. It is a good idea to become well-informed before making this decision.