Healthcare of Ontario Pension Plan

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How to save for retirement

Canadians are diverse in many ways, including their choices of employment, the distances they’re willing to commute for work, or even their favourite coffee chain But one thing most of us have in common is that, at some point, we want to retire and be able to enjoy life after work While it is a positive goal, retirement is one of life's biggest expenses and saving for it isn't easy Most Canadians simply are not saving enough or preparing as well as they could be To help address that, we have identified five value drivers that, used individually or in combination, can help your money do more and go further to help keep Canadians on a path to a more affordable retirement

Source: The Value of a Good Pension

The five value drivers:

Saving - Be a disciplined saver

Saving for retirement early and consistently can significantly reduce the overall cost and enhance your ability to retire comfortably

It is important to be aware of all the potential factors that could impact your ability to save, like:

• focusing on current needs

Fees and costs - Keep more money in your pocket

Canada has among the highest mutual fund fees in the world Over a lifetime, these fees can significantly reduce your overall returns

Our research shows that investment fees and costs can add as much as $275,000 to the total cost of retirement when compared to the more cost-efficient Canada-model pension plans (which use all five value drivers in unison) Lower your fees and costs and keep more of your money working for you

Investment discipline - Avoid bad behaviour

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

If you choose to go it alone, it’s even more important to be aware of common investment traps Our research shows that traps like “Buy low, sell high”, “loss aversion” and “market timing” can cost the average Canadian $116,000 in foregone performance over their saving lifetime Having professional money managers helps – when the experts do the heavy lifting, you have more time to focus on saving and enjoying life

• Andrea Frazzini and Owen Lamont, “Dumb Money: Mutual Fund Flows and the Cross-Section of Stock Returns” (2008) Fiduciary governance - Putting investor interests first

Individuals managing their own money will try to do what’s best for them financially, but when working with outside advisors, fiduciary governance lets savers know that their interests are put first

Having your money managed by experts at an institution that has a fiduciary duty to member investors can generate better results than investing in retail funds managed under a profit-driven model

Risk pooling - There's strength in numbers

Risk pooling involves combining money with others in a single pool, with the ultimate goal of reducing risks – specifically, longevity risk (the risk of outliving your money) and investment risk

Risk pooling, of all five value drivers, has the largest impact on retirement savings and, according to our research, it can reduce the amount individuals need to save over their working life by almost $400,000

For more information on the five value drivers and HOOPP’s efforts towards advocating for more affordable retirement, take a moment to read Improving Retirement Affordability