ARE YOU ON TRACK?
We are all unique. We are different in ages, interests, incomes, skills, temperaments and tastes. But, when it comes to retirement savings, we also have a lot in common. Most of the things we need to do are similar, if not exactly the same. Money-Sense co
20s ALLOCATING YOUR PAYCHEQUE
You enter the workforce with high hopes, trying to find the match between what you love to do and what will pay the rent. This can be a tough task as the job market continues to shift from full-time positions to short-term contracts or gigs. However you earn your money, you’ll face a big challenge: How are you going to allocate it? You may have a chunk of student debt to pay off. And you may be trying to do that at the same time as you’re trying to save for big goals, such as a home, a wedding, maybe kids.
You know you should be thinking about retirement savings, too, because the days are gone when you could expect to retire with a generous defined benefit pension plan. But your paycheque will only go so far, and shouldn’t there be at least a little money to have a life? Finding a balance among all these competing demands is tough.
Your top tasks in your 20s are, first, to get a handle on your debt. Work hard to crush your student loans and any credit card balances hanging over you. While you’re doing that, open up a retirement savings vehicle, even if you have very little to put into it. It could be a TFSA or an RRSP, but at least open the account and contribute a little, every single month. One reason to start early is to have the benefit of compound growth working for you. But a much more important reason is that starting to save for retirement when you’re young, even just $10 a month, establishes a habit. As with exercising or healthy eating, good habits make all the difference over the long run.
30s SETTLING DOWN (A LITTLE)
This is the decade when your priorities start to shift, if they haven’t already. Perhaps you fall in love. Maybe you have a child. Or you stay single and awesome. However your life may be unfolding, it will likely remain a challenge to fund your short-term goals, let alone save for retirement.
Your top tasks in your 30s are to figure out how much you need to comfortably retire. Even if you have an excellent pension plan, you may need to save more depending on just how expensive your version of “comfortably” is. You will likely need to increase the amount you save every month by making tough choices about your cash flow. This is the decade when you need to plant each foot in two separate worlds: One foot in the present, enjoying the magic and madness of your (relative) youth; and one foot in the future, to the time when you’re no longer getting a paycheque and will need a nest egg to pay for your groceries.
40s BALANCING WORK, KIDS & PARENTS
The demands of modern life can be intense. Work continues, but you may also find yourself caring for aging parents as well as your kids.
Your top tasks in your 40s are to stay consistent with your retirement savings habit, and to look more closely at your returns. This matters at all stages, but now more than ever because your nest egg is getting bigger. You need to know how much you’re paying in fees, and keep them in check. And you should review your asset allocation to make sure you have the best risk/reward balance based on your temperament and the time you have until retirement.
50s BECOMING AN EMPTY NESTER
If you have kids, they may soon fly the coop. (Or fly out, return to the comfort of your basement, and then fly out again). If you can get them off the family payroll, your 50s can be a good stage for saving because your expenses may be lower and your earnings could be higher if you’re at the peak of your career.
Your top tasks in your 50s are to take a look at how your nest egg is tracking to your goal. Hooray for you if you’re on track. If you aren’t, look at what you could do differently to free up more cash to save. Could you take up a side hustle or downsize your home? Depending on when you plan to retire, you might want to start shifting your asset mix towards more fixed income. And, as always, remain vigilant on fees.
60s ACTIVE RETIREMENT
Retiring at age 65 is a dated concept. It is much more fashionable these days to gradually slow work down and keep your work clothes handy for a part-time gig. At some point in this decade or the next, you might move into active retirement — a stage when you have your health and the time to do whatever you want. This stage could be very long or it could be short, depending on when you retire and how you feel. You will move from the accumulation stage of retirement savings to the decumulation stage — spending down some of what you’ve saved.
Your top task in your 60s is to assemble your team. Now is the time to surround yourself with people who can help as your financial, physical and mental health needs change. Family members are key, but now is the time to find an accountant and financial adviser, if you haven’t already.
70s LIVING YOUR NEW LIFE
You might be as spry in your 70s as you were in your 60s, but at some point you’ll move from active retirement to a quieter version of it. For some people, that doesn’t happen until their late 80s or even 90s.
Your top tasks at this stage are to convert your RRSP to a RRIF — those are the rules, after all. Depending on your situation, you might consider buying an annuity to give you the peace of mind that comes with a guaranteed income. It is also important to keep an eye on your nest egg to ensure you’ve got some buffer for health expenses, but that you’re still living your life and not being overly conservative on spending if you don’t have to be.
The top tasks for retirement savings evolve over time — just like individuals. The key thing is to stay engaged in the process, to enjoy the maximum amount of financial flexibility and the minimum amount of stress.