Most people don’t want to work forever, but many of you are on track to do just that. It’s never too soon to start saving and investing for retirement- and good news… it’s never too late either! Saving for retirement is one of those things that sounds like a huge stressful, complicated thing that requires lots of planning and calculating and frustration. But it’s really not. It’s one of those drop in the bucket things where a little bit over a long time can have a huge potential. Setting aside just a little money each payday starting now, can give you a surprising nest egg when you retire. Even if you make a lower income now, you can still retire rich. And it doesn’t have to be difficult, nor does it require you to give up a huge chunk of your paycheque today. This article will get you started.
Why Start Now
Saving for retirement is one of those better safe than sorry type of things. You could make excuses and put it off now, but you don’t know what your future will bring, so anything you can do now will help prepare you for the unseen future. And, the earlier you start, the more it will grow. Time is money’s best friend. Here’s a fun example. Suppose you set aside only $200 per month starting at age 30. And suppose you retire at 65. Now suppose you put that $200 per month into modest mutual funds averaging a very modest 8% per year. Then at age 65 you’ll have about (drum roll please) : $458,000. That’s almost half a million dollars! That’s not even including the fact that as your career progresses you will be able to increase your contributions. And with some good investment planning (start with the articles on this site) you can average much more than 8% annually. The earlier you save, the more it will grow. Get started now!
Now I’m going to stop being nice. If you are an adult reading this article and if your early twenties have come and gone then this message is for you. The paragraph above was the nice way of getting you to get started. And now the gloves come off. If you aren’t saving SOMETHING for retirement right now, and if you have no intention of starting ‘yet’, then you’re being a fool. That’s right I said it. The longer you wait the harder it is to catch up. When you are 75 are you going to be still working and cursing your younger self for being so foolish? Or are you going to be relaxing in your favourite retirement spot? If you watch the news you’ll see that more and more seniors are reaching retirement without enough saved. It’s becoming a scary and common problem. Seniors with health problems who have no money and aren’t fit enough to work are at a frightening point in their lives. Who will care for them? You have to take responsibility for your own future so you aren’t a burden to your children. This is all on your shoulders – so get to it!
How To Start
If you aren’t doing anything at all yet, then I want you to do this right now, today: call up your local bank or credit union, find one that has a high-interest savings account or a money market account that earns 3% or more. Open one of those accounts and start transferring what you can spare into this account every month. Ok, now take a deep breath. Read up some more about retirement planning then talk to your employer, if they have a 401K or RRSP plan then enroll right away and contribute at least enough to get any matching money that your employer will give you. Otherwise, see if your bank can set up an RRSP or 401K for you. Ask lots of questions so you know exactly what you’re doing.
Next, have a look at your monthly budget (I know you have one right!?) and re-work the numbers until you can free up at least 10% of your gross income. If you are working on getting debt free… then leave this at a smaller percent until you pay off all your debt. Once you free up money for retirement, make it a part of your budget expenses- make a “Retirement Saving” expense. So now you know that this retirement money is money you owe to yourself and you can’t spend it. Start paying this ‘retirement expense’ to yourself by putting it into your retirement investments or RRSP/401K. Each time your income changes, re-visit this number. Once you are debt free except for your first mortgage, you should try to work on your expenses until you can save 15% of your gross income to retirement. The farther away your retirement is, the more aggressively you can invest it. Once you learn more and you are comfortable, speak to a professional retirement planner who can make a plan that’s perfect for you.
Now comes the hard part. Even harder than setting aside that money each month, is watching it grow and resisting the urge to borrow from your retirement investments to buy a house, car, vacation or something else. You will hear so called tips that if you borrow from your RRSP/401K you are paying yourself the interest, blah blah. No! This is risky! You are risking your retirement when you do this (what if something goes wrong and you can’t pay it back?)- so leave it alone. Convince your mind that this is not money you have to play with. It’s untouchable until you retire. Don’t even factor it into your thoughts when planning a big purchase. Don’t make a common mistake by touching this money. Just stay steady and focused, growing it early so you can retire rich.
Don’t start your retirement planning today and then just leave it on auto-pilot for the next 30 years. You need to review it at least once a year to make sure you are contributing as much as you can, and that your investments are in the right place. The closer you get to retirement, the less risk you want in your investments. Also if you are invested in something that’s been a poor performer for a few years, it might be time to move to a better choice. Don’t forget to re-visit your retirement contributions when your income changes. It’s also good to get the help of a retirement planner who can look at your overall picture and tell you if you are on track to retire by your target date. It’s no good going on your merry way if you aren’t saving enough to retire when you want to. If your investment planner gives you a yearly package with mind-boggling numbers and graphs, call them up and ask for it to be explained in plain english. You have the right to know in simple terms where your money is invested, how it’s doing, and whether you are on track to meet your goals. Don’t leave it solely in someone else’s hands- ultimately you are the one responsible for your future.
Since you made it this far through this article, I’m going to say you’re on the right track. Knowledge is half the battle. The other half is action. So keep learning, start small, and plan big. It’s never too late or too early to make sure your golden years will be everything you want them to be.