I recently reached a milestone in my retirement savings accounts. Unfortunately, despite this milestone, I am still behind in terms of where I *should* be and how much I *should* have in terms of retirement savings at this stage of my life.
I graduated high-school 24 years ago, and I’m 23 years away from the pseudo-mandatory retirement age in Canada. Basically, I’m in midlife. Over the last 2-3 years, retirement has become front and center in my preoccupations.
Before it wasn’t -or not really-for a few reasons: I was paying-off debt instead, wasn’t earning enough, was building my emergency fund and wasn’t as disciplined as I should have been. I also decided to obtain an MBA, switched to part-time work or took time off work altogether. Oh, and I also weathered the great recession and the Covid-19 pandemic.
In a nutshell, life happened; it still is…
I know I am not alone in this situation. Here are a few suggestions to jump -or jump back- into the retirement savings bandwagon.
Figure-out what you want your retirement to look like
As we age, our perspective on what our retirement should be will shift several times. Perhaps, you thought about retiring to your cottage, but then realized it may not be ideal to due underlying health issues or inhospitable winter climate. You decided becoming a snowbird was more appealing.
Determining your retirement lifestyle will also determine how much you need to save and what your current gap is. Depending on how wide that gap is, you may have to adjust your expectations and wishes.
Take financial inventory
RRSPs are not the only source of income for retirement.
Canada has 3 programs to fund retirement: Canada Pension Plan -CPP-, Old Age Security-OAS- and Guaranteed Income Supplement -GIS-.
There is always much speculation as to how viable these plans are, and how long they’re going to be around for. Canada’s Chief Actuary calculated the CPP will be sustainable for at least the next 75 years. Your government pension should definitely be factored in your retirement calculations.
You may also have properties. Selling them or renting them out will boost your retirement income.
You may also have other savings accounts, that, at this stage, aren’t designated for retirement; and could be.
It’s important to take financial inventory before panicking and thinking you’re not saving enough. It may not be the case…
Further financial review and budgeting
If, after taking inventory, you know you still need to save money for retirement, it’s time to look at your day-to-day expenses and income.
Most people don’t like being told that they have to curb their spending in order to retire comfortably. We’re wired to spend and indulge ourselves. However, if we want to retire, we need to be able to actually save money….
It could also be better to increase income instead. You can only go so low when cutting on expenses. The sky is the limit when it comes to earning potential.
You can negotiate an increase, find a higher paying job, take a part-time job or other side hustle.
You need to align your finances with your retirement savings goals.
Consistency is key
Once you’ve determined what you need to save each month, stick to it!
One of the best way is to have automatic transfers set-up, in sync with your paycheck.
Saving first, spending second. You’re paying yourself first, literally.
Pay debt selectively
I’m aware this piece of advice is controversial. In the PF blogosphere, the universal advice is to pay debt off as soon as possible. There is a kernel of truth in this. I personally believe debt will always be debt and needs to be paid off at some point.
If you’re behind on your retirement savings, I’d suggest only paying-off high interest debt instead, and save -and invest- more for your retirement.
If you have low interest debt, such as a line of credit, I’d suggest only making the minimum payment, until you’re further ahead retirement-saving wise.
You should only prepay your mortgage if all your savings accounts are fully funded and maxed out, and you don’t have any other debt.
Prioritize RRSPs over RRESPs
If you’re a parent, this may be very hard for you to do. You need to prioritize saving for your retirement over saving for your kids’ education.
The reasons for this are:
- Your children may not want to go to college/university
- They can take student loans and will have their entire working lives to repay them
- You can’t take a retirement loan to fund your expenses when you stop working
- It’s unlikely your children will be able to pay for your expenses -on top of theirs-
Consider downsizing now
If your children are grown-ups and have moved out, if your home is too big or too expansive to maintain, downsizing could free-up a pile of cash to put towards your retirement savings.
Renting may also be the better solution to buying again.
Have adequate insurance
Unexpected events are one of the biggest reasons people are forced to dip into their retirement savings, on top of any other savings they may have.
Reduce the risk of exposure by ensuring that you have adequate health, disability, and home and car insurance if applicable.
Even if you start late or fall behind, it’s always possible to build a secure retirement plan by considering your anticipated lifestyle and future sources of income, and having a little bit of financial discipline.
I definitely need to improve on the “consistency” and “budgeting” parts. What about you? Where are you at with your retirement savings?