Although I just turned 30 and I don't feel different, subtle signs are telling me that I have entered a new era. I checked a new age box while snowshoeing last weekend. And I recently flipped past the 20s section of a makeup-and-style-advice-for-every-decade magazine article - apparently I have a few more fashion don'ts to follow.
This could also be the make-or-break time for my retirement planning - even though I have more immediate financial concerns than saving for life 30 years down the road. You may be in the same place, especially if you're carrying a mortgage or raising a young family. But Jack Fournier, an investment adviser with Dundee Securities in Vancouver, stresses: "Sometimes you have to fund a little bit of everything … and retirement should be one of those things."
Sometimes you have to fund a little bit of everything … and retirement should be one of those things. Investment adviser Jack Fournier
Mr. Fournier says when it comes to planning financially for your future, the amount you invest can be far less important than the time you give it to grow. Consider this scenario: At 30 you start investing $400 a month at an average annual return of 8.5 per cent. After 15 years your $72,000 investment will be worth approximately $145,000. At 45 you stop the monthly contributions but continue to let your money grow at the same average annual return of 8.5 per cent. At 65 your investment is worth approximately more than $750,000. Compound interest and 35 years have multiplied your $72,000 more than 10-fold.
If, on the other hand, you wait until you're 45 to start putting money away, here's the comparison: with an estimated average annual return of 8.5 per cent, you will have to save more than $1200 every month for twenty years to accumulate a similar nest egg when you're 65. That's triple what you'd need if you started today.
Of course, retirement - and what you save for it - looks different to each of us. It's up to you to sit down, make a plan and crunch the numbers, keeping in mind that, by the time you do reach your golden years a mortgage and certain expenses, like paying for daycare, will likely no longer factor. Many financial advisers say most retirees can live off 70 per cent of what they made while working. There are a number of calculators online to help you get a general idea of what your financial picture will look like in retirement - including this detailed exercise from the Canadian government.
Married? To properly plan for retirement you need to know each other's dreams. Don't wait to discover your husband wants to hang with the grandkids and golf while you envision sailing around the world on a private yacht. Your shared goals will help you decide if you need to increase your monthly savings, take on riskier investments or prolong retirement. If contributing to your RRSP while paying off student loans, raising kids and buying a home seems daunting - do what you can. The key is to start. When I was told how much I would need to save monthly to retire comfortably I knew the only wiggle room in my spending plan would require me to make small sacrifices and go from there.
Here are some suggestions to get you started. They may seem simple, but they're effective.
• Skip the designer espresso. If you love vanilla lattes, try regular coffee with a shot of vanilla to save $40 a month.
• Lower your interest rates. Running the interest you're paying through a site like www.BankRate.com will likely motivate you to pick up the phone. Going from 19.5 to 15 per cent on a $5,000 balance could save you close to $20 a month.
• Bring down your banking fees. Visit the Financial Consumer Agency of Canada website to discover what bank offers the best rates to fit your needs. Switching to a no-fee chequing account, for instance, could save you up to $15 a month.
• Consider carpooling. You'll fuel up less, even if you catch a ride just once or twice a week. Check out www.carpool.ca for tips and to connect with fellow carpoolers.
• Keep your channels in check. Find yourself flipping past a majority of TV stations? Switch from premium to basic cable and save $20 monthly. Or, at least call your cable provider to see if you'd better fit another plan.
• Brown-bag it. I know we've all head this one, but how many of us actually do it? Bringing your lunch from home just once a week will save you about $30 a month.
• Barter your services. If you're a PR guru looking to shed a few pounds, see if you can swap skills - instead of cash - with a personal trainer who's just starting up. You can exchange service for service for service for stuff.
• Skip the gym membership. While we're on the topic of working out - consider the savings of giving up your monthly gym membership if you don't use it. My girlfriend pays almost $60 a month for hers and if she makes it a couple of times a month she's on a roll. Maybe put your membership on hold while you test out some other free fitness options - DVDs from the library, forming a workout group, or taking advantage of free online sites like www.mypypeline.com.
Once you've mastered the small stuff, finding bigger and more significant ways to put dough aside for retirement becomes a piece of cake. I recently met a couple who decided to rotate after school childcare duties once a week with other friends. If your kids are in daycare (and you have the time) you might want to consider the same. This couple saved $100 weekly. You could also apply the same system for doggie daycare.
Once you've pictured what you want your retirement to look like, got a general idea of what it'll take to fund that dream and committed to making monthly contributions, you might want to connect with an adviser to get a more detailed assessment of your goals and finances.
Think about your RRSP contributions today as an opportunity. Time is on your side when you're in your 30s, and saving just a couple hundred dollars a month (for now) can go a long way in terms of your retirement.
. Weigh in on whether you would stash some extra money into an RRSP, RESP or a TFSA.