Plan for retirement before it’s too late
A survey indicates that up to 62% of Canadians actually expect to retire with a lot of debt
Now that the baby boomers are starting to retire it seems they’re not as good at it as they thought they would be.
Record levels of debt and a sense of entitlement have left many with a retirement income gap they’re scrambling to fill. But there is still time for YOU to do it differently. And just because there’s confusion now doesn’t mean you have to walk the same path.
But there are also a few very important lessons in here for the generations who are following the boomers: Having robust savings won’t count for much if you’re walking around with a lot of debt. It has been estimated that four in 10 Canadians will retire with debt. I’m willing to bet, based on how delusional I’ve found people to be, that the number is much, much higher. Another survey reported that 62 per cent of people plan to retire with a pile of debt hanging over their heads. That’s a little more in line with my thinking. The lesson: Your balance sheet must balance.
It’s not just how much you have saved, it’s your overall net worth that paints an accurate picture. Update your net worth statement every six months to track progress. We used to aim to have our mortgages paid off by the time we swapped paycheques for retirement income. Now Canadians with a mortgage do not consider paying it off as an important factor in deciding when to retire. It seems more than half of us think retiring with a mortgage is now OK. Is that because we don’t have a hope in hell of getting it paid off and we’re reconciled to being old and poor? If you’re living on less income, doesn’t having fewer fixed expenses just make sense? The lesson: If you’re buying so much home that you can’t afford to pay it off during your working years, you’re setting yourself up to have a very stingy retirement. Can’t live within your means while you’re working? How are you going to on a fixed income that’s less? Credit cards and lines of credit have made living beyond our means easy. Since most retirement income is predicated on receiving 30-50 per cent less income, shouldn’t you practise living on less to learn to be happy with what you have? The lesson: You’re going to have a lot of demands on your money over your lifetime: retirement savings, educational savings for your kids, mortgage repayment.
You have to prioritize saving over spending if you’re going to meet your goals.
Learning to be happy with what 50-70 per cent of your net income can buy means when you transition into retirement you won’t be assaulted by the concepts of frugality. In the meantime, save aggressively and pay off your mortgage to have more financial security. The Big Lesson: Don’t make the same mistakes your parents did. Surely you’re smarter than that!