No Retirement Savings? It’s Not Too Late!
What if you’re in your mid-fifties and you’ve held off saving for whatever reason and now you’re thinking more about retirement? You don’t have a company pension, maybe you’ve had periods of unemployment, still have dependent children, or gone through an expensive divorce. You now realize your measly retirement fund isn’t going to cut it.
Is it too late for you? Will you be flipping burgers well into your old age?
It’s not too late to make a plan
A new survey by Franklin Templeton Investment Corp. finds that slightly more than one-fifth of pre-retirement, younger boomers in Canada (aged 55 to 64) have nothing saved for retirement.
Bemoaning past poor decisions and bad luck won’t change reality. You need to start getting your financial house in order, now. You still have options.
How can you make proper decisions if you don’t know what you have, what you want to do, and how much it will cost? It’s time to make a plan.
1. Where do you stand right now? Take stock of your current financial situation. List your assets and liabilities. Analyze your expenses.
2. Pay off any debts. Make this a top priority. If you will be living on a fixed income you don’t want to be using your savings to make consumer loan and credit card payments – with the accompanying high interest.
3. Think about your future needs. How will your expenses change in retirement? Think about how you’ll live and how much it will cost you. Your retirement bucket list might need to include money for travel and new hobbies.
If you haven’t already done so, sign up with Service Canada to determine your CPP and OAS benefits at different ages. Pull out your latest company pension statement to see how much your payments will be.
The gap will need to be filled from your personal savings.
4. Do a retirement projection. There are tons of retirement calculators available online – some better than others. However, even the best ones are only tools that provide guidance. You don’t know the future so you can only make assumptions about inflation and investment returns, so don’t be too optimistic.
Try out different scenarios. You many not like the answers, but it’s better to know if you’ll have a potential shortfall so you’ll have time to make adjustments.
5. Ramp up your savings. It’s time to double down. Take a look at your unused RRSP contribution room and contribute as much as possible. This has the added benefit of generating big tax returns, which can be reinvested into your RRSP. Consider contributing to a spousal RRSP to even out your retirement income, if applicable.
If you’re a lower income earner work on maximizing your TFSA contributions. Take full advantage of any matching contributions offered by your employer. Or you may be able to top up your pension plan.
Caution: You may be tempted to increase your returns by choosing riskier investments. This is not the time to speculate. It’s a dangerous strategy that could cause you to fall even further behind. Rather than looking for the “best” investment, build a portfolio appropriate for your needs that will help you maximize your lifetime income.
6. Break those bad spending habits. Sometimes we’re not aware of our bad habits or how much money they’re costing us. What is your financial Achilles heel? Scrutinize your budget and track your spending. Know your spending triggers.
Practise a little austerity now and impose some discipline on your finances. Stop throwing away money on short-term wants. Basically, spend less. It may take some time to change, but stick with it and visualize the prize (that would be your retirement life) to get motivated.
7. Revisit your retirement date. Most people want to retire sooner rather than later but staying on the job an extra year or few increases the number of years you can save. It also reduces the number of years you will have to withdraw from your savings.
Another option is to plan on working part-time after you leave your regular employment.
8. Be creative. After you’ve crunched all the numbers, you may still feel you won’t have enough. This is where you have to start thinking about other possibilities.
There may be good financial reasons to consider downsizing to a smaller, newer home or one in a less expensive area to free up cash and reduce expenses now and in retirement. If moving isn’t on your radar think about tapping into your home equity.
Identify opportunities to save more. Put those bonuses and overtime money directly into your savings. Get a side gig. Sell no longer needed or wanted belongings.
Related: 5 Myths About Retirement Planning
The bottom line
Despite their best intentions, many people don’t get serious about retirement planning until they’re well in their 50’s. If you’ve arrived late to the retirement savings game, then you have your work cut out for you.
While your savings won’t have the years to compound like those made by a 30-year-old, they’re still important. You may be in your peak earning years and still have ten or more years left in the workplace. There should be a big push to optimize this and set aside more of your earnings.
Assess your current situation – assets and debts. Beefing up your savings, making smart investing decisions, working longer and/or tapping into your home equity all can help.
You may not have the pleasure of a luxurious lifestyle, but you should be able to manage a comfortable retirement doing the activities you enjoy.
It’s not too late. The key is to begin – begin now!