In my head, I’m about 30 years old, my parents are about 55.
It’s not a perpetual adolescence, I’m not struggling with adulting. I’m grown up, I can handle my responsibilities, but in my head, I am in a place where I think my body can do whatever I tell it to, and my parents are spry and fit and ready to rescue me should my ship of life run onto the rocks.
In reality, I just turned 47 and my parents are in their 70s. The long road of life that seems to blend into an eternal horizon suddenly has a dot that, if I squint, looks like a finish line.
That glimpse of the ‘finish’ has me stepping out of things, surveying the landscape, looking at the odometer and doing some math about where I’ve been and where I’m going.
Because I have that “30 year old headspace,” I’ve never really thought about my retirement. I mean, I’ve had an RRSP for 20+ years, I’ve been ‘planning’ for a while, but I never took a stock at where I’ve been, where I’m going, and where I want to end up.
Retirement? I’ve been so focussed on living my day-to-day life, maintaining my career, and looking after short term bills, that I never really assessed the big picture. I’ve been working with Scotiabank this RSP season, and they set me up for a meeting with one of their financial planners. It’s easy to make an appointment and the session is free. Whether you’ve been saving or a while, or just starting out, thinking about where you want to finish is important.
I gave Jason my figures. How much I’m making, how much I’m saving, what I have saved, what I have in debt, and what I want to do with myself when I stop working.
Now THAT is a question I have never pondered. Will my wife and I stay in Calgary when we’re done? Will we move back to a likely incredibly unaffordable Vancouver? What about Kelowna or Invermere … or a home in Provence?
I still don’t know the answer to the question, but with Jason’s help I did some math, crunched some numbers, and discovered… I’m richer than I thought!
I know, it’s in the commercials, but I really did say “I’m richer than I think!” when Jason showed me that with a small increase in saving once I have the mortgage paid off, my wife and I will be able to comfortably retire at 60!
What?! I always thought I’d need to push into my 70s to get the nest egg I needed, but with some small budget changes that include a ramped up debt schedule, and increased savings once those debts are gone, I’ll be able to get to that lump sum number I need to have money in the bank well into my 90s. (Nobody knows exactly how much money they’re going to need in retirement. Use 70% of your current after tax income as a starting point.)
It’s a conversation you need to have. 73% of Canadians have put aside less than a quarter of what they need. 34% of Canadians over the age of 55 wish they would have started earlier.
The first thing we tackled in our meeting was to work through a the budget I had created for myself to ensure that it was comprehensive of what I spent each month (loans, bills, food, etc) .
Then work on debt to see what goes out each month, to see if you have room to save each month for retirement, and to find where things can be done to make more room.
Whether you’re close to retirement, just starting to save, or in the wheelhouse of raising kids and trying to keep your neck above water in a busy schedule, pulling out and looking at the big picture is an important thing to do – especially during RSP season.
Here are some other questions I asked Jason during our meeting:
Is it smart to keep paying off debt before increasing my RSP contributions?
Ideally you can do both, pay down debt and save, at the same time. It all depends on the interest differential. Paying off high interest debt first is important, low interest debt (say on a line of credit) could be okay to let linger – if your rate of investment return can beat the rate of what you owe. It is important to look at how much the interest costs are compared to how much you may be earning on your savings.
How do TFSAs fit into the mix?
Save to both, if you can. A TFSA is an excellent complement to an RSP. A TFSA can be a liquid, tax efficient way to save for emergencies and other goals, whether they be short, medium or long term.
What’s the best way to catch up on unused RSP room?
If you don’t have extra cash lying around, leverage investing. A line of credit can be used to catch up on the room you have available in the RSP. It’s all about playing the interest differential. Then you use refund to pay down line of credit, while continuing payments throughout the year to eliminate the debt before starting the routine over again.
Is my 8% contribution enough?
As long as I’m living frugally on the back end.
My income would allow an 18% contribution, but I can’t afford that – can I?
Not yet. Try to pay off mortgage and cars, because when those are gone, it’s like getting a big raise. I’ll make more disposable income once debts are eliminated that I can use to increase my payments.
Let’s do the real math – I know how much I have, but how much do I really need?
This post is sponsored by Scotiabank and is for general information purposes only and is not intended to be specific financial or tax advice.