How to efficiently secure your retirement

On the surface, saving for retirement seems like a relatively straightforward process. However, there are many factors that impact our ability to effectively save, such as:

• wage changes
• life events
• spending habits
• rising cost of living
• economic uncertainties
• lack of financial knowledge

Those factors, and many others, influence those attempting to save for retirement on their own. The results: individuals often start saving later, save less consistently, and withdraw from their retirement savings far too often. That means they are saving much less than is required during their working years and allowing less time for their money to benefit from the power of compounding returns.

In a Canada-model pension plan, automatic enrolment and regular contributions can ensure savings are consistent and grow exponentially over time.

As retirement savings start to accumulate, individuals need to assess their personal finances and decide how that money will be invested. In many cases, these savings are directed into mutual funds and other products, which often carry high fees. Over a lifetime, these fees can significantly reduce your overall returns.

Research shows that investment fees and costs can reduce an average worker’s retirement savings by as much as $275,000 during their working years; however, in a Canada-model pension plan, like HOOPP, the associated costs tend to be significantly lower, which means more money in the worker’s pocket.

Studies show that when it comes to investing, individual investors “have a striking ability to do the wrong thing.”¹ Managing a retirement fund over a working career requires a high level of investment discipline to avoid many of the psychological traps that frequently plague investors.

Here are four of the most common ‘bad’ investor behaviours.

• Buy high, sell low: the temptation to invest more when the markets are doing great, and to pull money out when markets are doing poorly.
• Overconfidence: people are known to overestimate their investment abilities.
• Loss aversion: the reluctance to face a financial loss that can impact a person’s ability to reach their financial goals.
• Market timing: trying to time the purchase or sale of an investment can be quite risky.

These and other bad behaviours can cause individual investors to compromise their returns in the long run. Research shows that over a lifetime, this can cost the average Canadian $116,000 in lost performance.

Having professional money management is a great way to stay disciplined. When the experts do the heavy lifting, you have more time to focus on saving, and enjoying life.

¹Andrea Frazzini and Owen Lamont, “Dumb Money: Mutual Fund Flows and the Cross-Section of Stock Returns” (2008).

Trust is the basis of personal relationships and it is just as important in financial relationships. Individuals managing their own money will try to do what’s best for them financially, but it may not be the most efficient.

Fiduciary governance is a key component of Canada-model pension plans, like HOOPP. When investments are managed with a fiduciary responsibility to members, individuals know their interests are legally required to be put first.

Managing longevity and investment risk on your own in an attempt to avoid outliving your money in retirement can be challenging and costly. Canada-model pension plans, like HOOPP, create efficiencies by pooling longevity and investment risk for the benefit of all members.