While saving money may be top of mind for most young people, many overlook the importance of retirement planning.mediaphotos/istock
Sign up for the Globe Advisor weekly newsletter for professional financial advisers on our sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know. For more from Globe Advisor, visit our homepage.
Younger Canadians care about their health. They’re eating better, exercising more, and prioritizing their mental well-being. It’s clear millennials and members of Generation Z understand the long-term benefits of developing routine-based healthy habits. But what about their financial habits?
Surprisingly, these cohorts don’t appear to be as concerned about their financial health as we might expect, or as much as they should be.
Almost a third (30 per cent) of millennials (defined as those aged between 25 and 40) and 60 per cent of Gen Z (those aged under 24) surveyed have not started saving for retirement, according to a recent IG Wealth Management study conducted in partnership with Pollara Strategic Insights.
While retirement might seem far off to a generation that recently entered the workforce, developing long-term financial habits from the start can help ensure a smoother path to financial (and retirement) well-being.
When it comes to retirement, more broadly, adult Canadians (aged 18 and over) appear to have some common misconceptions. Two-thirds believe $1-million in savings is enough to retire on and one-third don’t know what percentage of their current income they would need to cover expenses in retirement, according to a recent survey.
Many Canadians could use some help getting into financial shape. For younger generations, that means starting early and small. A little goes a long way.
Investing even nominal amounts of money at a young age and staying invested, will accelerate the growth of savings and investments to build a solid nest egg for the golden years.
While saving money may be top of mind for most young people, many overlook the importance of retirement planning.
How to get started
So, where should they begin? Much like embarking on a new exercise routine, they have to start developing a good routine – and stick to it.
That could mean taking small first steps such as avoiding debt accumulation, especially high-interest credit card debt. it could also mean opening a tax-free savings account or a registered retirement savings plan (RRSP) and making small monthly contributions.
Many put off retirement planning because they’re still paying off large amounts of debt incurred earlier in life. If young people can avoid this, saving for retirement will be that much easier. If they do accumulate debt, they should prioritize paying off the debt with the highest interest first.
Younger generations should also look closely at their budget and expenses to determine how much they can realistically save each month. That’s where a financial advisor can be particularly helpful.
And no, contrary to popular belief, advisors aren’t just for older Canadians or the affluent.
A knowledgeable advisor can help younger Canadians create a comprehensive and personalized long-term financial plan that will allow them to reach their retirement goals, and sooner. That includes advice on the best savings vehicles for particular goals, where to invest money, and understanding time horizons and risk tolerance.
For example, making a rash decision based on trends such as opening a cryptocurrency account, might not be the best long-term investing decision.
Much like crash diets, there are no shortcuts when it comes to getting into financial shape. Instead, it’s important to take a balanced approach to investing and develop healthy financial habits at a young age.
Investments are not enough
Also, an investment portfolio alone is not a plan for retirement despite what many think. Almost half of survey participants believe they will be able to retire comfortably just by focusing on investing in an RRSP. However, that’s not actually the case.
There are many other important considerations to keep in mind when it comes to retirement such as taxes, income sources, estate planning, and decumulation strategies. An advisor will take these other factors into account when building a holistic retirement plan for clients.
While it might seem like a long way off for millennials and Gen Z, it’s never too early to start planning for retirement.
With the right guidance and financial plan, young people can have the confidence and knowledge to retire on their own terms. The time to form healthy financial habits is now.
Damon Murchison is president and chief executive officer at Winnipeg-based IG Wealth Management.
For more from Globe Advisor, visit our homepage.