Tag Archives: saving

$1.7 million to retire: doable or out of reach?

Front page of Wednesday’s Financial Post print edition.

Plenty of press this week over a BMO survey that found Canadians now believe they’ll need $1.7 million to retire, compared to just $1.4 million two years ago (C$). The main reason for the higher nest-egg target is of course inflation.

As you’d expect, the headline of the story alone attracted plenty of media attention. I heard about it on the car radio listening to 102.1 FM [The Edge]: there, a female broadcaster who was clearly of Millennial vintage deemed the $1.7 million ludicrously out of reach, personalizing it with her own candid confession that she herself hasn’t even begun to save for Retirement. Nor did she seem greatly fussed about it.

Here’s the Financial Post story which ran in Wednesday’s paper: a pick-up of a Canadian Press feed; a portion is shown to the left. The writer, Amanda Stephenson, quoted BMO Financial Group’s head of wealth distribution and advisory services Caroline Dabu to the effect the $1.7 million number says more about the country’s economic mood than about real-life retirement necessities.

BMO’s own client experience finds that “many overestimate the number that they need to retire,” she told CP, “It really does have to be taken at an individual level, because circumstances are very different … But $1.7 million, I would say, is high.”

Here’s my own take and back-of-the-envelope calculations. Keep in mind most of the figures below are just guesstimates: those who have financial advisors or access to retirement calculators can get more precise numbers and estimates by using those resources. I may update this blog with input from any advisors or retirement experts reading this who care to fill in the blanks by emailing me.

A million isn’t what is used to be

Image via Tenor.com

Back in the old days, a million dollars was considered a lot of money, even if that amount today likely won’t get you a starter home in Toronto or Vancouver. This was highlighted in one of those Austin Powers movies, in which Mike Myers (Dr. Evil) rubs his hands in glee but dates himself by threatening to destroy everything unless he’s given a “MILLL-ion dollars,” as if it were an inconceivably humungous amount.

The quick-and-dirty calculation of how much $1 million would generate in Retirement depends of course on your estimated rate of return. When interest rates were near zero, this resulted in a depressing conclusion: 1% of $1 million is $10,000 a year, or less than $1,000 a month pre-tax. When my generation started working in the late 70s, a typical entry-level job paid around $12,000 a year so you could figure that $1 million plus the usual government pensions would get you over the top in retirement.

Inflation has put paid to that outcome but consider two rays of hope, as I explained in a recent MoneySense Retired Money column. To fight inflation, Ottawa and most central banks around the world have hiked interest rates to more reasonable levels. Right now you can get a GIC paying somewhere between 4% and 5%. Conservatively, 4% of $1 million works out to $40,000 a year. 4% of $1.7 million is $68,000 a year. That certainly seems to be a liveable amount. More so if you have a paid-for home: as I say in my financial novel Findependence Day, “the foundation of Financial Independence is a paid-for home.”

Couples have it easier

If you’re one half of a couple, presumably two nest eggs of $850,000 would generate the same amount: for simplicity we’ll assume a 4% return, whether in the form of interest income or high-yielding dividend stocks paid out by Canadian banks, telecom companies or utilities. I’d guess most average Canadians would use their RRSPs to come up with this money.

This calculation doesn’t even take into consideration CPP and OAS, the two guaranteed (and inflation-indexed) government-provided pensions. CPP can be taken as early as age 60 and OAS at 65, although both pay much more the longer you wait, ideally until age 70. Again, couples have it easier, as two sets of CPP/OAS should add another $20,000 to $40,000 a year to the $68,000, depending how early or late one begins receiving benefits.

This also assumes no employer-pension, generally a good assumption given that private-sector Defined Benefit pensions are becoming rarer than hen’s teeth. I sometimes say to young people in jest that they should try and land a job in either the federal or provincial governments the moment they graduate from college, then hang on for 40 years. Most if not all governments (and many union members) offer lucrative DB pensions that are guaranteed for life with taxpayers as the ultimate backstop, and indexed to inflation. Figure one of these would be worth around $1 million, and certainly $1.7 million if you’re half of a couple who are in such circumstances.

Private-sector workers need to start RRSPs ASAP

But what if you’re bouncing from job to job in the private sector, which I presume will be the fate of our young broadcaster at the Edge? Then we’re back to what our flippant commentator alluded to: if she doesn’t start to take saving for Retirement seriously, then it’s unlikely she’ll ever come up with $1.7 million. In that case, her salvation may have to come either from inheritance, marrying money or winning a lottery.

For those who prefer to have more control over their financial future, recall the old saw that the journey of a thousand miles begins with a single step. In Canada, that step is to maximize your RRSP contributions every year, ideally from the moment you begin your first salaried job. Divide $1.7 million by 40 and you get $42,400 a year that needs to be contributed. OK, I admit I’m shocked by that myself but bear with me. The truth is that no one even is allowed to contribute that much money every year into an RRSP. Normally, the limit is 18% of earned income and the 2023 maximum RRSP contribution limit is $30,780 (and $31,560 for the 2024 taxation year.) Continue Reading…

12 unique ways to Change your Spending Habits

What is one unique way someone can change their spending habits for the better? 
To help you improve your spending habits, we asked CEOs and business leaders this question for their best tips. From trying to not purchase anything online for one month to trying the envelope method, there are several unique tips to help you change your spending habits for the better.

Here are 12 unique ways to change your spending habits: 

  • One Month No Online Purchases
  • Check How Long You Can Go Without Something
  • Change Paid Activities to Be Cost-effective
  • 30-day Challenge
  • Track Your Spending for One Week
  • Buy from Your Local Market
  • Reduce Impulsive Purchases
  • Shop With Lists Only
  • Ask a Friend
  • Use Cash as a Payment Option
  • Set Savings Milestones and Rewards
  • The Envelope Method is One Way to Change Spending Habit

 

A Month with no Online Purchases

My wife and I recently did a one-month challenge on not purchasing anything online. The breaking point was coming home after a long weekend and finding over 10 packages on our doorstep between the two of us ordering online. We heard of a challenge where you don’t purchase anything for a month, but knew that wouldn’t work for us. We decided just not to purchase any items online. If we needed something we had to go to the store and purchase the item. We realized we didn’t have to buy as much stuff as we were previously ordering online. After the challenge month was over, we did both change our spending habits and don’t buy nearly as much as we previously did online. We also found out that the physical store tends to be less than purchasing your items online. –Evan McCarthy, President CEO, SportingSmiles

Check how long you can Go without Something

When you’re contemplating buying something, the best way to evaluate your intentions is to check how long you can go without it. If you decide on a date until which you believe you will not need this product or service, postpone your spending until that date. Once the new date arrives, ask yourself the same question and set another date. Do this thrice, and chances are the futility of adding it to your list of purchases will finally hit. It’s also highly probable that you won’t even choose to remember the later dates and forget all about spending your hard-earned money on something you never required in the first place. Riley Beam, Managing Attorney, Douglas R. Beam, P.A.

Change Paid Activities to be Cost-effective

Going out for drinks, going bowling with friends, dancing at the club: these are all fun activities that are definitely worth your time and money. These expenses, however, add up in the long run and one way to still enjoy yourself but save a little money in your wallet is to substitute some activities with cost-effective alternatives. For example, instead of going to a bar for drinks, create a makeshift bar at home. Try hiking or scope your community newsletter for other free, public events. Adam Shlomi, Founder, SoFlo Tutors

30-day Challenge

One unique way someone can change their spending habits for the better is by doing a 30-day challenge. One of the most significant barriers to saving money is impulsive buying. It’s easy to fall for an online advertisement that claims to anticipate your needs and wants. But there is a workaround:

– Take a screenshot of the ad rather than clicking on it.
– Create a folder on your desktop to store all these screenshots.
– Check the folder after 30 days to see if you still wish to purchase that item.


The 30-day challenge is also applicable to offline purchases. Write down what you want to buy, give yourself 30 days, and then decide if you still wish to purchase. After a 30-day wait, you may be shocked by the items that no longer interest you. Tiffany Homan, COO, Texas Divorce Laws

Continue Reading…

4 easy ways to Build Wealth: at any Age

Pexels

By Emily Roberts

For the Financial Independence Hub

Whether you’re just starting out or planning for retirement, there are ways to build wealth at any age. There is no golden age when building wealth; the wealth gap is reducing. If you want to grow your savings and assets, you must take action regardless of your life stage. Here are five easy tips for increasing your assets at any stage of life.

Start Saving early

If you start saving early, you’ll have plenty of time to compound your interest and grow your savings. Even small amounts of money can make a big difference over time. The earlier you start saving, the less you have to save each month from reaching your goal. If you start saving at 25, you’ll have to save $100 each month to have the same amount saved at 65. If you start saving at 35, you’ll have to save $300 each month to reach the same amount saved at 65. While it’s never too late to start, the earlier you start saving, the less you have to save each month from reaching your goal.

Pay off High-interest Debt ASAP

Credit cards can be dangerous because they’re easy to use for small purchases, and you may not notice the interest growing. If you don’t pay off your credit card in full each month, you’ll pay the credit card company more than the original purchase price. You can pay off your debts with a debt consolidation plan, and you can speak with a specialist like Harris & Partners to learn more about how debt consolation works. Debt consolidation helps you achieve a balanced and focused loan payment that is adjusted to your financial situation. In this way, you can free up more funds for investments and get out of debt faster. Continue Reading…

11 best Personal Finance formulae to live by

 

What is one personal finance formula that you live by to help maintain expenses and create wealth?

To help you maintain expense and create wealth, we asked small business owners and professionals this question for their insights. From developing multiple streams of income to living beneath your means and giving back, there are several personal finance formulas that you can use to maintain your expenses and generate wealth.

Here are eleven best personal finance formulas to live by:

  • Develop Multiple Streams of Income
  • Set a Budget and Stick To It
  • Make and Save More Than You Spend
  • Seek Out the Best Deals
  • Overestimate Your Spending
  • Value and Invest in Yourself
  • Account For Every Dollar With Zero-Based Budgeting
  • Track Your Spending Monthly
  • Deposit Any Extra Cash to Savings
  • Set Clear Expectations With the 30/50/20 Rule
  • Live Beneath Your Means and Give Back

Develop Multiple Streams of Income

You need to develop multiple streams of income, if you can. Just trying to get wealthy from one source of income is not enough to build the sort of wealth you’re imagining for yourself. Starting with the income stream you have now, add to it. Invest, if you can, as dividends from the right stocks or mutual funds can be another income stream. In general, the more income streams you have, the greater your ability to create wealth. — Carey Wilbur, Charter Capital

Set a Budget and Stick to it

Setting a budget and sticking to it is a tried and true personal finance formula that works for anyone of any age, in any business. Fiscal responsibility is never overrated. Knowing how much you have coming in and going out, how much you can afford to spend and how much would be too much, can prevent you from making costly decisions. This is one of the key foundations of creating and maintaining wealth. — Randall Smalley, Cruise America

Make and Save more than you Spend

I live by the formula of making and saving more money than I spend. There’s no better way to create wealth than being responsible with what you earn. Save more than you spend, make smart investments when possible, and don’t deviate from your long-term goals. Work hard and stick to your budget, and your wealth will continue to grow. — Vicky Franko, Insura

Seek out the Best Deals

I try to save money wherever possible and always try to find the best possible deal on an item. A penny saved is a penny earned, after all, so I do my research in order to earn. If I see something I like, I shop around to be sure that I’m getting the best price. The same principle can be applied to anything, whether we’re talking about books, TVs or, like with us, insurance. — Brian Greenberg, Insurist

Overestimate your Spending

When creating my budget, I always overestimate my spending for each category. I round up every number so that there is a buffer for unexpected costs, and I’m never cutting it too fine. I find this removes the feeling of being too restricted by my budget and letting it rule my life by being in the way of spontaneous moments. When in reality, a budget is there to make your life easier and help you plan for the moments which bring you great happiness. It’s barely noticeable to put away a little extra for each spending category but combined this adds up and allows you space to live more freely. — Antreas Koutis, Financer

Value and Invest in Yourself

You are your own greatest and most important investment. That’s how I see it. Be sure that you’re paying yourself what you’re worth, commensurate with the value you bring to whatever you’re doing. Continue Reading…

7 Retirement tips for young Savers

By Mikayla St. Clair

Special to the Financial Independence Hub

One might think that planning for retirement while still young is a hindrance and a waste of time. However, the truth is that early planning has its benefits because you are not just planning for your old age but preparing for every other day you live as well. Planning is not easy; you need a few retirement tips on how to go about it regardless of whether you are just thinking about it or already have a plan. Here are seven appropriate for young savers

1.) Focus on financial stability

The real aim of planning for retirement is to ensure one has financial freedom in old age. If having a retirement plan below 30 years seems off, look at it this way, retirement is like saving to ensure you are financially stable. This is feasible through working out your expenses early; save up for the coming month’s expenses.

2.) Live within your means

Often young people tend to live lives that are way beyond their means. With this, most of their earnings go into acquiring things they may not need. As a result, some rarely have anything for saving. While the idea of getting anything you want sounds good, it may only be momentary and poses dangers in the future.

3.) Have a Plan

With a single monthly pay-check, budgeting may be tricky. There are bills to be paid, debts to be cleared, and much more. That is why you need a plan, plan your expenditures, and ensure to leave some for savings. How do you achieve this?

Cut back on unnecessary costs; if your workplace requires long commutes, consider moving somewhere closer. Spending those extra dollars or minutes on the road may not seem harmful, but they accumulate into a significant loss of wealth with time. Start small; often, the ideology people have is that each contribution must be in high number in saving. However, you may invest too much and exhaust everything. Start small, and eventually, things will build up. Continue Reading…