Discipline can help you retire in 10 years

North York accountant suggests even low savers can reach financial stability within a decade

The world around you would rather you spend every nickel you make rather than sock away a single dime.

The temptation is everywhere, and even your bank’s notion of a high-interest savings account is a 0.80-per-cent annual rate. Here, a hundred bucks doubles in 90 years. Woohoo.

The problem is particularly acute when it comes to retirement savings.

As company pensions have declined, more people are left to find the discipline to save for the distant future.

But between now and then are mortgage payments and a new roof, car repairs and summer-camp fees. They are all part of the pressures that contribute to the psychology of under-saving.

But North York accountant and author David Trahair says not to worry. His latest book, The Procrastinator’s Guide to Retirement, argues that someone in their 50s can retire in 10 years even if they haven’t saved a cent.

Trahair makes the case with the simplest of personal finance strategies — spend less than you make, and save the rest. Even in a low-rate environment, he believes you can end up with a fair chunk of money in 10 years. It’s a stretch to think that’s all you’ll need. You’ll have to combine the savings with other forms of retirement income, but it may be a surprise how much it adds to financial security. “People just give up,” he says. “They think they need millions, but they don’t. I’m trying to give them hope that they can do it and in 10 years or less.”

Of course, Trahair makes all kinds of assumptions. The main one is that you have a reasonable income now in order to get going.

He also assumes that after years of procrastination, you can find the discipline. But what choice is there? The Canada Pension Plan works for everyone because it is a forced saving. You have to contribute and ultimately get a benefit.

If you force yourself to save, the same benefit occurs.

Trahair believes that when people look ahead, they become overwhelmed by the big number they need for a comfortable retirement and so give up. The closer they get and the less they have saved, the more they fret.

It is not about hitting a home run with “magical and amazing investment returns.” Nor is Trahair a fan of the “what-if” charts. They show what happens if you saved X-thousand dollars a year for 40 years at some rate of return.

Young families don’t have the money, and the rates of return are often unrealistic, he says. Here’s his plain-vanilla solution: Your last 10 years at work are likely your highestearning years. Reduce spending below your income as far as you can comfortably go. Some big expenses probably fall off — education expenses for kids and a mortgage. Think used versus new car.

Put as much as you can into your Registered Retirement Savings Plan and make sure to compound that by adding in your tax refund. Any extra can go into a tax-free savings account.

Balance risk and reward by investing in conservative stocks and fixed interest options.

Trahair likes the 100-minus-your age rule to determine weighting.

A 55-year-old would have 100 minus 45, or 45 per cent in stocks and 55 per cent in safer investments.

In the current environment, the fixed income portion might include dividend funds that hold high-quality stocks.

The 3-to-4 per cent yield will beat 0.80 per cent. Trahair says many will be surprised by how small amounts add up.

When you combine that savings with CPP, Old Age Security and other assets, it’s meaningful.

The book has work sheets and tools and is available in bookstores and online for $14.99.

The Chartered Professional Accountants website offers it as an ebook for $6.99.

“The biggest mistake people make is to give up,” Trahair says. “Even if you don’t go whole hog, you can still do something.” That’s good advice. The one sure thing is that if you don’t do anything, nobody else will. Adam Mayers writes about investing and personal finance on Tuesdays and Thursdays. Have a question? Reach him at amayers@thestar.ca