We are experiencing a silver tsunami as the leading edge of the Baby Boomers turned 65 six years ago and an average of 1,250 Canadians turn 65 every single day.
It is therefore no surprise that one of the most popular financial topics that the media, politicians and the financial services industry likes to talk about is retirement. However, there are a lot of myths we have to be wary of if we want to properly plan for a comfortable retirement lifestyle.
This is the first of a two part series where I will be looking at debunking some popular myths surrounding planning for your retirement.
Myth #1 - Retirement planning is just for older people
The definition of retirement is changing and even though it may seem like a long way off, use that time to your advantage. Much like dieting and exercising, starting a plan and sticking to said plan are the hard parts.
Every little bit of savings helps and will make it easier if you start early. Harness the power of compounding returns where planning and saving a little now on a regular basis can let money work for you – 24 hours a day, seven days a week…for decades. Your money will seem to grow slowly at first but then it will start to balloon as you get older, even if you just put in the same amount every time.
Every year you delay means you will need to save more money, or worse, accept a lower retirement lifestyle that is affordable. Some people may decide to take on higher investment risk in order to catch up, however, that can be like playing financial Russian roulette.
Myth #2 - I’ll never be able to save enough for retirement
“I’ll never be able to save enough for retirement.” Saving for retirement may seem like an insurmountable task when you are young, starting a family, paying off student loans and dealing with a mortgage. Don't fall into the trap of thinking it will be easier to save for retirement in just a few more years when you hope your expenses will decrease or you expect to get that big promotion. One day you’ll stop and ask yourself, ‘Where did the time go?’
Today’s society is wired to spend now and consumers are addicted to the low interest rates we have been experiencing for almost the last decade – high-tech electronics, luxury accessories, a new car every couple of years, a bigger house or condo. Eventually rates will start to rise and people will suddenly be faced with debt they cannot afford and no savings.
Every year you delay starting to save ultimately means you'll need to save more in order to get on track for a retirement that’s getting closer and closer.
The best time to start saving for retirement is when you are young and just starting to work; even if things just didn’t work out that way for you, then consider starting now. Let the power of compounding returns work for you as long as possible.
Myth #3 - I need $500K, $1M, $2M, etc. to retire
The fact is that your “number” can vary greatly depending on your personal situation, retirement goals, how long you expect to live, whether you are single or have a spouse/partner and at what age you will retire.
If you want to maintain the same lifestyle before and after retirement, your number is tied to how much income you will need to provide the same level of consumption dollars in the future. You may also want to take into account your bucket list for the early years of retirement when you will be the most active and likely spend more money. While there are government benefits like the Canada or Quebec Pension Plan (CPP/QPP) and Old Age Security, these cannot be relied upon solely for your retirement income.
There are many free financial and retirement planning tools available online, and these can be a good first step to get you thinking about your future. A professional financial planning firm, like Wealth Stewards, can help you to quantify and understand what your retirement goals mean for you today and create a personalized financial road map to help guide you.
Myth #4 - Never touch your capital
Conventional thinking generally views it as a negative to drawdown capital during retirement. While that may work for the wealthy, whose investments generate plenty of cash flow so that they can preserve their capital for their children and grandchildren, the rest of us will have to gradually deplete capital to provide lifelong income.
Also take into account higher health care costs, such as a personal caregiver or a retirement home, in your later years. Can your capital last several years of these higher costs, or should you be purchasing critical illness or long term care insurance to help bridge the gap? Finally, if your situation allows, look at providing legacies for your children and/or grandchildren, funding charitable donations and other philanthropic goals.
Work with a retirement income planner to ensure that you have enough capital to provide you with the cash flow you want along with emergency funds for those unexpected expenses.
The Bottom Line
Be proactive when planning your retirement and remember, the earlier you start, the better! Healthy retirement planning will help ensure a more successful retirement. Click here to schedule a meeting with one of our Wealth Consultants today.
All examples are for illustrative purposes only and are not intended to provide individual financial, investment, tax, legal or accounting advice. This material is for general information and is subject to change without notice. Every effort has been made to compile this material from a reliable source. However, we cannot guarantee that information will be accurate, complete and current at all times. Before acting on any of the above, please make sure to see a financial professional for advice based on your personal circumstances.