GCCIBlog, Financial Planning, Retirement Issues and more

A recent poll released by one of the big Canadian banks, CIBC, indicates that a large percentage of Canadians are not financially prepared for their retirement! This may come as a surprise to many people in the US who have the impression that Canadians are conservative savers and have a sound banking system. We may have the banking system but many of us have not taken advantage of everything we should have done over the years and now face a retirement that is going to be less than what we thought or planned for.

Key findings of the poll by CIBC include: 44 per cent of all Canadians say they are not financially prepared for their retirement. Also among Baby boomers at the leading edge of the boom (aged 55-64), 31 per cent say they do not feel financially prepared for retirement. Are Americans in a similar situation? Most likely and probably worse if you listen to all of the news reports!

Having a Plan Improves Your Optimisum

A lot of people have their heads in the sand, because they are afraid to find out just how bad their situation is relative to retirement. They are afraid of what a plan will tell them so they simply do not want to know. The reality is actually far from the truth. Although your situation may not be great, finding out exactly were you are at financial with respect to retirement can be enlightening and helpful. At the very minimum, you will find out exactly what you need to do to get into a better place with respect to saving enough for retirement.

The same poll by CIBC fond that among Canadians who say they have a long term investment plan for retirement, 76 per cent say they are financially prepared for retirement, versus just 25 per cent among those who don’t have a plan. That is very significant! Having a plan let’s you set goals to help you get to were you need to be financially and helps you meet those goals as well

Plan all Year Long, Not just at Tax Time

Reviewing your plan at tax time is better than not having a plan at all, however you really should sit down with your spouse and review your retirement plan several times a year. Update assumptions about your retirement if there are changes and update your plan with current values so that you are never surprised. Another advantage of updating your plan several times a year is that you can make decisions about saving more for retirement during the year instead of at the end of the year when you have lots of other expenses.

Continuing to work during Retirement

This same poll by CIBC indicated that fully 69 % of Canadians who are at the age of 65 or older plan to continue working during retirement. Boomers younger than 65 appear to have accepted the reality that they will need to work past 65 to maintain the lifestyle they need for the retirement. If they have not saved enough for retirement, they this is really the only option they have.

If you are not yet 65 or have retired, now is the time to complete an assessment of your finances and take steps to at least make your retirement as comfortable as possible. Here are a couple of steps to take if you feel that you are not saving enough for retirement or do not know if you have enough for retirement.

• Meet with an Adviser
• Build your plan or Review your Retirement Strategy
• Contribute regularly to a retirement savings plan:
• Manage and Track Day to Day Spending against a budget
• Prepare for the Unexpected i.e. have an emergency fund

Not Saving Enough for Retirement : Get Active Today

The steps above are pretty basic and easy to follow with the help of an adviser.  If you are laying in bed awake at night losing sleep over whether you will be ok financially in retirement, take action now and  get started. List all of your assets of every kind, list all of your anticipated income from all sources, list all of your day to day budgeted expenses and finally include any special expenses you may have. This includes major repairs to the house, a new car, travel and also health related issues.

Once you have this information together, talk to a financial adviser who is willing to help you answer the questions you have. Of course in return he or she is going to want you to place your investments with him. This is ok, provided you are getting the assistance you need. any adviser who is only interested in helping you with investments is not really an adviser, instead they are only interested in how much money thay can make and not really helping you!

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Every once and awhile you run across people who really seem to have their act together when it comes to saving money, while others just seem to squander it and are always running short. These people could be called extreme savers or perhaps they just make efficient use of their money. We know of people with two incomes, who never seem to have any savings, yet they freely spend their money on new cars, dinner out all of the time and lots of material things. They seem to have a lot, they throw out a lot of stuff and seem to be really enjoying life. Try talking to them about retirement and the answer is that they cannot even consider retirement until they are 65 at least.

While the extreme savers are looking at retiring at 50 or 55 at the latest. Remember the freedom 55 advertisements. We do not see much of that any more after the severe recession we have just been through, yet there are people who can and do afford to retire early and have done so on their own without any outside help or huge inheritance’s. Just how do they manage to accomplish such a feat, while raising a family, buying a car, a house and all of the other things that go along with living the life style of an affluent person in North America.

It seems that the basic philosophy is to pay cash for everything and not to purchase anything until you have saved sufficient funds to pay for what you wish to purchase. Can it be that simple? Most people today carry multiple credit cards, they have a loan for their car and a mortgage on their home. if they are lucky that is all they have, yet they pay thousands of dollars in interest on these items, while an extreme saver manages to save all of this interest by paying cash for everything. With all of this extra money, not only do things they want to buy cost less, they can save even more money.

A few examples will easily demonstrate what a difference it makes. Lets assume that you have a car loan. The bank or loan company is usually obligated to tell you by law, how much you pay in interest over the life of the car loan. For most situations at current interest rates this can amount to several thousand dollars which you tack onto the price of the car. For a car valued at $35 thousand with a loan over 4 years this extra cost in the form of interest might add up to over four thousand dollars. Imagine if you had that money and wanted to just save it! Now you are earning interest on the money you saved. It just continues to compound and your savings add up quickly.

I recently read an article about a family who had a nice home, two older cars all paid for, they had raised two kids who were now in university and combined they had savings over two million dollars saved for retirement! They were in their early 50′s and had medium level jobs. How did they amass such a fortune?

According to them, it was pretty simple. They just lived reasonably, paid cash for everything and only bought things when they needed to. They did without if they did not have the cash to pay for something. Now you might say that they were so frugal that they and their kids were missing out on life, in fact even depriving their children of a normal child hood. Well it could not be further from the truth.

Maybe they did not have the latest model cars every year, maybe they did not have the latest electronic gadgets at the same time everyone else did, and maybe they did not go on expensive trips like everyone else in their neighborhoods have done. However they do have two cars, they do go on trips and they do purchase electronic gadgets after the prices have declined. Instead of being early adopters, they are fast followers, buying a flat screen TV for example after the prices have dropped from the thousands to around $500. A perfect example is that you can buy a 3D TV now for several thousand dollars. Wait a year or two and they will be down to around a thousand, more affordable and more features.

Anyway you get the point, which we will summarize in case you missed a few:

• Pay cash for everything
• Be a fast follower rather than an early adopter
• Do without until you can afford it
• Save as much as 50% of your income for retirement
• Live within your means
• Plan for the long term so that your retirement years are comfortable
• Invest wisely
• Diversify your investments

Hope fully this post has given you some ideas about how to become independently wealthy, become an extreme saver and yet be able to enjoy life and all that is has to offer. Having a nice nest egg or retirement fund, gives you a lot of independence and just maybe you can retire early instead of working until you are 65 or older.

Feel free to add your comments about extreme savers or retiring early. However we delete spam comments, so make sure they are adding some value to this post so that our readers can benefit . Good luck with your savings plans!