Whenever we sit down to do a financial plan for our clients, the crux of the plan inevitably hinges on two equally important and related questions: how much you are spending as you live your life, and how much you need to save for retirement.
Once those two questions are nailed down, it’s relatively straight forward to make some conservative assumptions about rates of growth and then roll those projections forward to the end of your working life. We make assumptions about growth rates that we hope to exceed, and we make sure there is money left over at the end.
Some people are in the fortunate position, whether through luck, skill, or having that rich aunt or uncle, that they don’t need to save for retirement. For the rest of us, it generally involves a trade-off between how much we spend enjoying our life today against how much we’ll have to enjoy our life in retirement.
If you’re in that small minority that tracks your monthly budget down to the loonie, then simply decide how you’ll change your spending habits to save enough for retirement.
For most people, it’s as simple as starting to set aside a fixed amount of money each month. Make sure that the money comes out right after you get paid, and have it sent directly to wherever you invest. You’ll be surprised how quickly you adjust your spending habits when the cash isn’t available.
If it’s too hard to make up for the reduction in available cash after a few months, then you started taking off too much: reduce the amount you’re saving and try again for a few months. Too easy? Increase the amount you’re putting away.
Another simple rule is to allocate a certain percentage (say, half) of any “found” money directly to your savings. This might include a one-time gift, modest inheritance, work bonus, etc. Again, it’s a mindset: allocate this first, then decide what to do with the surprise windfall.
Remember to check back against the planning work you did at the beginning and keep pushing yourself to meet that savings goal. It’s hard work, but much more likely to succeed than buying a lottery ticket every week.
Will Mactaggart | [email protected] | 519-827-2906
All material has been prepared by Will Mactaggart. Will is a Director, Wealth Management and Portfolio Manager at Richardson GMP Limited. The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Richardson GMP Limited, Member Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.
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