In part 1, we examined 5 common retirement planning mistakes. Here are a few more:
Mistake # 6: not investing
Saving is not enough. The most you can earn by leaving your money in a Canadian high interest savings account is 2%. Most savings accounts barely pay 0.5%.
Inflation is the biggest money eater. $ 1 000 today will not buy the same amount of goods 5 years from now, let alone 30.
Historically, the stock market has always recovered and outperformed anything else. From 1900 to 1999, the average return was a little over 10%. This number does not account for inflation and taxes, but it is definitely better than 0.5%.
Mistake # 7: paying too much for your investments
A 2% MER charged annually on a mutual fund can eat up almost a third of you have invested in said mutual fund over a 20 year period.
Beware of how much your investments cost you. Do not rely on your financial adviser to be upfront about this. Look for deferred sale charges as well as redemption fees and the likes.
Mistake # 8: not taking advantage of tax minimization opportunities
In Canada, the RRSP and TFSA are your two best friends when it comes to retirement planning.
The RRSP is a tax-deferral mechanism, whereas the TFSA does not levy tax on dividends, capital gains and interests received from your investments.
Mistake # 9: counting on an inheritance
This is banking on money that you don’t have, and that you may never receive. If you are an actual beneficiary, the amount you receive could be smaller than you think after probate.
Mistake # 10: thinking you’ll never retire
No matter how much you love your career, your business or your job, there will be a point in time you will no longer be able to do it. Aging is real!