The earlier, the better…
It seems when the words “pension” and “retirement” roll off the tongues of individuals they are in their late 50s or early 60s. During these years, individuals are usually scrambling to the bank or financial advisors to establish a plan to set aside money for retirement.
Although ten to fifteen years may be enough time to save enough money to pay for the essentials in the future, having a long-term approach to preparing for retirement financially will make your life easier.
When should you be thinking about your pension? In your 50s, 40s, 30s, 20s? The ideal answer is the earlier, the better. However, individuals may have different financial responsibilities to address, which prevent them from setting aside (savings) for a pension.
Regardless of when you start planning financially for life after 65, it would be wise to consider the following six variables that will influence how you will save for your retirement.
1. The basics will not get cheaper
Buying the basics such as milk and bread will cost more in the future. Consider that in the 1980s, a carton of milk and a loaf of bread was $0.48 and $1.60 respectively, imagine how much the two items will cost when you retire? Will you have to break your budget to feed yourself and others?
2. Time is on your side
The major advantage of planning and saving early is that time is on your side. The more time that you have will allow you to put away more money to grow in certain investments. By following a strict savings plan for a long period of time will afford you a sum of money to use for your needs and wants.
3. Saving strategies and tools
Saving for your retirement entails finding the right strategies and tools to use to meet your needs. Possible saving strategies include automatic withdrawals – deposits on a consistent basis, percentage of your account balance on a yearly basis and “When I Have It” deposits. Regardless of the strategy and the amount of money that you have to save, some of the common tools to use to receive a return on your investment include: Guaranteed Investment Certificates, High Yield Savings Accounts, Tax-Free Savings Accounts and Registered Retirement Savings Plan.
Each tool has their advantages and disadvantages which will impact the way that you elect to manage your money. (For more details, visit the Monnaie Money website.)
4. Old age security may not be enough
Although the old age security pension plan factors in the increase in prices of goods, the plan may not offer enough to cover medication and other health- related expenses not covered by Medicare. In this case, Canadians must be prepared to have the funds to pay for such services as transportation and home assistance care.
5. Will you have access to other pension plans?
Depending on your occupation, you may have access to other pension plans. If so, your need for a savings plan may not be that urgent. In the event that a plan is not in place for you, you will have to decide how to best establish your own pension plan. Your plan can be in the form of one or more of the saving strategies and tools.
6. Living comfortably
Want to live comfortably after age 65? If your answer is “yes”, then you should start to plan for it. There’s a good chance that the OAS benefit will not allow you to take trips or eat at restaurants on a regular basis. As a result, you will need enough disposable income to purchase goods and/or services without going into debt.
7. Planning for dependants
Planning to have a family in the future or looking to provide for family members? Start to set aside money that will be available for their needs. Remember, prices for goods and services will increase and thus more money will come from your bank account or wallet.
Although you may be years away from retiring, it is never too early to save money. The capacity to put money away to grow for your pension begins with thinking and planning for the long term and finding the right approach and tools to provide you with the financial means to live without worrying about having access to cash for you and your family.