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Learning from pension managers when it comes to retirement ow interest rates and poor equity returns have many investors worried about their retirement plans. They are not alone since the same concern is being felt by pension fund managers. Individual investors and pension fund managers share a common goal: both invest funds for the purpose of providing cash flow during retirement. Individuals invest for their own retirement and pension fund managers invest in order to support hundreds or thousands of retirees. Both groups depend on investment returns that will support retirement cash flow requirements. Pyramis Global Advisors surveyed 632 pension funds in 16 countries managing in excess of $5 trillion. That accounts for 20 percent of the world's pension assets. The Canadian component of the survey included 92 pension plans representing 25 per cent of the pensions in our country. Pension fund managers are pessimistic about meeting their target investment returns over the next five years. Just more than one third of global managers think they will fail to meet their target returns while the figure is slightly higher in 27 · Thursday, October 18, 2012 OAKVILLE BEAVER · www.insideHALTON.com L Canada. Thirty-six per cent of Canadian pension managers do not think their assets are large enough to cover their liabilities. That means the pension funds may not be able to provide full pensions to all of their clients. Individuals can learn a great deal about their own retirement planning by listening to the concerns of pension managers. It is important for you to know the target return on your investments. If you have a certain amount of money saved for retirement, you have to calculate what investment return is needed to support your desired standard of living. Maintaining this standard of living simply means how much cash flow you need every year during retirement. The target return is critical and it is specific to each investor. Assume investor A and investor B both needed the same amount of cash flow during retirement but investor A had significantly more money than investor B. Investor A could have a much lower target return because they are wealthier. Investor A can have a less risky investment portfolio because of the lower target return. This would be done by lowering the amount in Dollars & Sense By Peter Watson equities and increasing the amount in bonds. Investor B is different. Investor B has less saved, so that portfolio needs a higher return on investment in order to produce enough money to support their cash flow needs during retirement. The target return is the foundation of an investment portfolio. That is a critical element in determining asset allocation. Our recommendation is that if you do not have a specific asset allocation that is based on your target return then do not make any investment decisions until that is done. Investing is hard enough and should not be further complicated by investing without first planning your investment strategy. Your asset allocation should be specified in your Investment Policy Statement. This document defines what and how much you should invest in various asset classes, such as equity and fixed income and how that is diversified geographically around the world. We strongly recommend you determine the desired level of cash flow needed during retirement. Calculate your own target return on investment and develop an asset allocation strategy. Preparing for retirement is no different than other things you do in life. Plan first and then follow the plan. -- Submitted by Peter Watson, MBA, CFP, R.F.P., CIM, FCSI. SERVICES FOR Job Seekers & Employers Oakville Employment Services 465 Morden Rd., Suite 109 905-845-1157 x121 Find the right job for you. Free employment services. Assistance with job searching, resumes, cover letters, interviews and more. 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