Saving for retirement is difficult, but necessary. Here are some tips to ensure that you do it right.
Play catch-up. Maybe during your first few decades of work, you failed to see the wisdom of socking away cash for retirement when there were so many more fun things to do with your funds. If you're now age 50-plus, retirement is just around the corner and some age-old bits of investing advice apply to you in spades.
- It's never too late to save.
- Contribute the maximum allowable to your RRSP or work pension plan.
The good news is that you could well be at a slight advantage financially over your younger brethren when it comes to saving if you own a mortgage-free home and have already paid for your children's education.
Marie Howes, owner of MoneySmart Inc./Marie Howes & Associates in Mississauga and a member of the Canadian Association of Pre-retirement Planners, suggests diverting the cash that once went to those fixed expenses to your RRSP, preferably by setting up an automatic withdrawal each month. "The money you don't see in your account, you don't miss."
Don't throw up your hands in defeat. Don't be frightened off by inflated estimates of how much cash you should have in the bank for retirement, advises Bruce Cohen, author of The Pension Puzzle.
While many retirement advisers contend that you need 75 to 80 percent of your pre-retirement income to live comfortably in your golden years, he asserts that's "one of the great con games perpetrated by financial marketers." If you've got a good government pension and have put in many years of service, you may not need additional savings at all, contends Cohen.
But for the average Canadian without an ironclad pension, 50 to 70 percent of your pre-retirement salary should allow you to live comfortably enough.
Why? Your expenses will be lower. "You'll be paying less tax and you won't have to fork out for commuting, lunch and clothing costs for work, as well as pension or RRSP contributions, CPP and EI," Cohen says. "If you've paid off your house, so much the better."
Delays pay — up to a point. Your CPP payments normally start the month after your 65th birthday. But you can begin collecting as early as 60 if you meet the requirements. You must have either stopped working for a month before your pension begins or have earned less than the current monthly maximum CPP retirement pension payment in the month before your pension begins.
- The problem: if you start receiving payments at 60, then you'll get 30 percent less per month, because you will be getting payments for a longer time period.
- On the plus side, you can delay receiving your pension until age 70 for a 30 percent higher monthly payout.
- That said, don't put it off past age 70. There's no financial incentive not to file for benefits at that age.
Don't let part-time earnings force an OAS clawback. Your Old Age Security Benefits will be subject to a clawback that effectively reduces your OAS benefit by $1.50 for every $10 you earn over a certain threshold ($63,635 for 2007).
As generations before you have noted: "It's never too late to start."
