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Canadians, Americans share retirement angst

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(Special) Misery, it seems, still loves to have a little bit of company.

The angst that many Canadians are feeling about their retirement also exists with our neighbours to the South, although to a slightly lesser degree, thanks in part to the better performance of our economy since the global recession hit in 2008.

According to some recent polls, only about a third of Canadians expect to have a comfortable retirement and nearly half say they are not financially ready for retirement, including baby boomers who are only a few years away from this stage of their lives.

South of the border, more Americans say they’re unprepared for retirement and are planning to stay in the workforce longer to compensate. Many Americans, in fact, have little or no savings set aside for retirement.

Twenty-seven per cent have less than $1,000 in savings, 43 per cent say they have less than $10,000 set aside, and more than half (54 per cent) have less than $25,000 saved.

BMO Financial Group recently conducted a cross-border study examining how Canadians and Americans feel about planning and saving for retirement.

In general, Canadians have a higher level of confidence and optimism than their counterparts south of the border.

Almost 60 per cent of Canadians are confident in their ability to save for their ideal retirement lifestyle compared to only 40 per cent of Americans.

Slightly more than two-thirds of Canadians are concerned about the performance of their Registered Retirement Savings Plans while almost 90 per cent of U.S. residents express similar concerns about the performance of their 401Ks, a U.S. retirement savings plan similar to an RRSP.

Half of Canadians and Americans say they have or may have to delay their retirement and/or work part-time during retirement to make up for a shortage of savings.

"Despite the effect that the 2008 global recession had on investors’ abilities to save for retirement, the Canadian economy has fared significantly better than the U.S., which has contributed to a more optimistic outlook," says Tina Di Vito, head of the BMO Retirement Institute.

"It’s telling that half of respondents in both countries feel that they have to delay their retirement or hold down a job during retirement," Di Vito says. "This doesn’t necessarily happen – there are strategies that can be implemented to better protect retirement portfolios during volatile times and help both Canadians and Americans achieve retirement success."

The survey also found that while two-thirds of Canadians have an RRSP in place, only 34 per cent of Americans invest in a 401K. Canadians contribute about $33 billion each year to their RRSPs, but they still have a whopping $600 billion in unused contribution room.

"Although market volatility like we’ve seen over the last year can deter people from saving, investing in an RRSP can play a critical role in helping Canadians reach their retirement goals, Di Vito says. "A well-diversified RRSP that’s appropriate for your life stage can help decrease risk."

Maintaining the right investment mix is a good way to manage a portfolio during turbulent times. This can be achieved by spreading your money across a variety of investments such as stocks, bonds and guaranteed investment certificates, which can increase the potential for higher returns while mitigating risk and creating a stronger portfolio.

Dollar cost averaging involves making regular investments consistently over a long period of time, which can benefit your portfolio, even in periods of volatility. As you purchase more shares when prices are low and fewer shares when prices are high, you average return will be greater than if you invested all your money at one time.

And don’t panic, as hard as it may be, try not to overreact and make impulsive moves with your investments, particularly equities.

"Seek out reliable sources and trusted experts to gain a better understanding of how financial markets can impact your investment portfolio," Di Vito advises. "A financial professional can provide guidance on how to build the right RRSP in order to set you up for retirement success."

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Copyright 2012 Talbot Boggs

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