Fidelity investments - After the global financial crisis - The five key risks to retirement income

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Five key risks to retirement income planing

Longevity
Inflation
Asset allocation
Withdrawal rate
Health care

From the peak of the Canadian stock market in June 2008 to the tough in March 2009, the market declined by about 50%. Even as markets have rebounded from their lows and the global financial crisis and economic recession of 2008-2009 recede into memory, some noticeable scars remain.

3. Asset allocation risk

Exhibit 7 shows the performance of the S&P/TSX Composite Index over the past 41 years. Although the market declined by more than 20% on seven different occasions, it grew substantially over the long term. In fact, the market grew about 46-fold over the past 41 years, an important point to remember for those facing longer retirements.

Balance and persistence

So even in retirement, it seems, the key to long-term success is most likely in a more balanced portfolio - neither all stock, which may carry too much market risk for some investors, nor all bonds and cash, which may have less potential for upside appreciation.

Events - and market behavior - in 2008 and 2009 underline the point. Exhibit 9 illustrates how the value of a balanced portfolio would have fallen in the 2008-2009 market correction. But it also shows how the portfolio's value would have bounced back if the investor had stayed the course.

Exhibit 10