Did you know that the idea of retiring at 65 was introduced way back in 1883? You’d think we’d have had enough time to get used to the idea of planning for the future, wouldn’t you? The funny thing is, when Chancellor Otto Von Bismarck of Germany introduced the retirement age of 65, hardly anyone lived to collect. Back then the average life expectancy for a man was just under 42 years. Women lived about a year and a half longer.
The world’s changed a lot since then. According to the Stats Man, men now live ‘til 77 and women live ‘til 82. If your own parents lived longer, you can expect to as well since genetics trumps averages. So, do you think you’ll have enough money to see you through 10-20 years of not working?
The struggle to balance building retirement assets for tomorrow against today’s very real demands for cash means that often the retirement planning gets pushed to the sidelines. Hidden behind “not enough money”, “paying down the mortgage” and “coughing up for university,” retirement savings flounder.
Related Article: At Risk Seniors Carrying Too Much Debt Into Retirement
If you’re young and starting out you might sing the popular tune, “I’ve got no money.” And it’s true. With lower incomes, student debt to pay off and retirement thirty-five or forty years away, who needs the extra pressure of taking money from cash flow for the long, long, long-term future?
Thing is, the pressure never lets up. There will be downpayments to save, mortgages to pay, children to raise. There’s never a good time to ‘not spend money’ when it comes to dealing with life. So you have to make the decision to save anyway.
Starting when you’re young has significant benefits. Spring chickens can set aside a significantly smaller percentage of their income to grow their retirement nestegg. And with a long-term investment horizon, there are far more investment options available that will grow your stash of cash. Want to compensate for a small monthly contribution? Look for an investment that produces a higher rate of return, as long as you’re prepared for the risk attached. Worried that your conservative approach to investing might be limiting your growth? Don’t be. With so much time on your side, conservatism isn’t a dirty word. You can afford to make like the tortoise.
If you want to create a balance between the present demands and the future needs:
- Plan and stick to a budget that includes an emergency fund and automatic contributions to a retirement plan.
- Make sure you’re covered by the right kind of insurance so your retirement assets don’t become your emergency fund.
- Plan for big expenses: returning to school, a downpayment on a home, a new car. Save-up instead of using credit.
It’s one of life’s big jokes that as we earn more money we seem to have less money to save. Expenses seem to grow disproportionate to our increasing incomes. We want to have a family. We need a bigger house. It’s time to trade the compact for a mini-van.
To stay on track with your plan:
- Ignore the “all or nothing” message. You do not have to forgo a life in order to have retirement savings. The idea is to balance today’s needs with tomorrow’s.
- Don’t make your plan so grand that you end up defeating yourself with unrealistic expectations. Start small, grow your contributions over time, keep your perspective.
- Pay off your consumer debt. Every dollar you pay in interest is a dollar lost to your retirement savings.
If you feel like you’re running out of time, relax. The nice thing about retirement is you have control over when you do it. We’ve moved many of the sign-posts of life further along the road — we have children later, go to school longer, and live healthily for many more years — so we can also move our retirement ages forward.
Even the Feds want you to retire later, so they’re gradually raising the age of eligibility for Old Age Security and modifying the Canadian Pension Plan (CPP) to increase benefits for those who wait past age 65 to make a claim.
If you don’t feel you have enough, plan to spend a little more time working, even part time. Every dollar you earn is a dollar you won’t have to spend from your retirement savings stash.