Five reasons Canadians should conduct an annual retirement review

When you first joined your group retirement plan, you picked your investments and set your risk tolerance. But like you might do with your other group benefits or personal budget, it may be best to review your savings plan every year.

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Has your life changed over the past decade or so? It’s a silly question because of course it has! On average, Canadians stay at the same job for a little over 8 years, or 12 at a manager level. During this time, life—not to mention financial circumstances—is likely to change quite a bit. Yet many group retirement plan members may not find the time to regularly review and adjust their retirement investment strategies. It may be easy to treat your group plan like a set-it-and-forget-it program, but like any investment, it should be assessed at least every year.

Of course, one exception to this rule is target-date funds. These investments let you choose your anticipated retirement date, for example 2040, and the fund automatically adjusts its risk level according to the amount of working years you have left before you retire. As you get closer to this time, the investments will become more conservative to avoid potentially losing a large amount of money with no time left to recover. In cases where you invest in target-date funds, it might not be necessary to hold a retirement investment portfolio review unless you plan to change the year of your retirement.

When should you review your retirement investment portfolio?

You should schedule an annual retirement investment portfolio review for the same reason you book a regular medical checkup: Things change, and you should be prepared. Evaluating your investments every year might seem excessive, but these five factors can help explain why it’s so important.

1  Age—Your approach to retirement investing will change throughout the years. If you’re early in your career, your risk tolerance for investments might be higher since you probably won’t use your savings for a while. This means there’s more time for your portfolio to recover from any downturns. As you get older, you’ll likely shift to more conservative, less risky investments to help preserve more value for retirement. No matter your age, it’s undoubtedly a big factor in your approach to investing, so just like you might change your fashion, diet, and hobbies over time, don’t forget to adjust your retirement portfolio.

2 Life events—Whether you’re managing a growing family, relocating for work, buying a home, or starting a new chapter of your life, major movement in your personal life can also affect your savings. At a minimum, you should regularly review your designated beneficiary to ensure you’re still comfortable with your selection. If you’re purchasing a home, it might make sense to borrow from your Registered Retirement Savings Plan through the Home Buyers’ Plan or make other withdrawals for a down payment.

3 Salary changes—Many group retirement plans allow for automatic contributions taken from your paycheque to go toward your retirement savings. Sometimes, this also comes with an employer matching option, which means that up to a certain amount, your employer puts as much money in your account as you do. Surprisingly, about 40% of eligible Canadians decide not to participate in these programs for a variety of reasons. As your salary grows over time, try to prioritize saving for retirement, even if you have to start small. Then every year, try to save a little more, and over time you’ll see your balance grow, too.

4 Stock market events—You know the stock market goes up and down, but watching it go down can be stressful if you see your savings going down as well. It’s best not to react to these changes and to wait until the market recovers, which, over time, it's always done. For example, global stock exchanges struggled during COVID-19 but recovered fairly quickly, with many surpassing prepandemic levels. When you have your annual investment review, you might want to discuss your retirement portfolio with your financial advisor if there have been changes in the market.

5 Inflation—One of the hardest parts of retirement planning is accounting for inflation. It’s difficult to consider your future budget when you aren’t sure how much things will cost. Generally, prices will continuously rise, but there are a few years, most recently 2022, where inflation rates spike above average. It’s critical to consider if your projected retirement income can withstand sudden increases and if you should adjust your investments or boost the amount of your contributions.

Why your retirement investment strategy should keep changing

If you set your retirement investments early in your career and never review your strategy, you won’t be able to take into account any possible changes, including job changes, family expenses and market fluctuations. It’s critical to review your investments every year, especially considering the effect life events can have on your retirement planning.

If you’re like many Canadians, you don’t feel very knowledgeable about selecting and managing your investments. If you’re unsure of how to save and invest today to help ensure a more comfortable retirement in the future, explore the basics of investing through our videos, tools, and articles.

The commentary in this publication is for general information only and should not be considered legal, financial, or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.