Are you over 40 and have nothing saved for retirement?
It is said that the perfect time to start saving for retirement is as a young adult. It allows you the ability to contribute smaller amounts on a regular basis, with the hope that it will grow into a retirement fund that gives you the ability to enjoy your retirement. The reality is that not every young adult has the same circumstances where that is possible. Some are struggling to advance in their career, starting a family, paying student debt, etc., and contributing to a retirement fund gets put on the backburner.
The good news is that whether you’re in your 40s, 50s, or even 60s, it’s still possible to save for retirement with a strategic plan to help you make up for lost time. Below are some tips that could be implemented to help get you on track to meet your goals.
- Set your savings goal – To come up with a strategic retirement savings plan, it’s best to start by setting your goal of how much you would like to have saved for retirement. To get a more accurate number, you’ll need to consider household size, the lifestyle you would like to live in retirement, and how much you are able to regularly contribute to your retirement fund. There are many retirement calculators available with a quick search online, or even provided through your bank that can help give you an idea of how much you need to have saved by retirement. By having a goal set, you can then create a financial plan with retirement savings being made a priority.
- Pay down your debt – Paying down your debt is crucial for success with your retirement savings goals. The more you are paying towards debt, the less you are able to contribute to savings. There are many debt repayment methods that are available to help you tackle your debt, such as the debt snowball method, debt avalanche method, and the debt blizzard method. By tackling this debt as early as you can, it then makes room for you to make larger contributions to savings, giving more time for investment growth, and prevents you from taking debt into retirement with you. Starting retirement debt free might allow you to maintain your standard of living even if your retirement income is less than your pre-retirement income.
- Take advantage of employee matching RRSP programs – A large number of employers now offer some sort of matching RRSP program. With an employee matching program, employers will match dollar for dollar, up to a certain amount or percentage. By utilizing this option, you are opting in to receive free money. For example, if you earn $65,000/year and contribute 5% of your income that’s $3,250 contributed over the year. If the employer will match up to 4%, they would also be contributing $2,600 for a total of $5,850 contributed over the span of a year. If your employer offers a matching savings program, failure to participate means you are leaving free money on the table.
- Reinvesting your tax refund – When people receive a large refund from their income taxes, it’s easy to get carried away. It feels like “free” money and people are tempted to treat themselves. However, if you’re one of the lucky ones who receive a tax refund, and are playing catch up with your retirement savings, this refund can be incredibly helpful. Funds contributed to an RRSP reduce your taxable income whereby, depending on your marginal tax rate, you could stand to receive 25 – 50 cents by way of higher refund for every dollar contributed. The eventual tax refund can be reinvested back into your RRSP and as a result, you will likely receive a larger refund the following tax year, whereby you can continue to reinvest and quickly make up for lost time.
- Delay your retirement – While delaying your retirement is not an ideal option for many, it is an option that more and more people are having to take into consideration. If you’re starting to build your retirement fund later in life, starting your retirement at a later age gives your savings a chance to grow to a larger amount. If you are taking advantage of saving within an RRSP, you are able to make contributions until you are 71 years old. Also, for every month beyond age 65 that you delay taking your CPP, your future CPP entitlement will increase.
While trying to build your retirement at a later stage in life, you are likely making larger contributions than you would have a young adult. With the larger contributions, it’s important to keep in mind the allotted contribution room within an RRSP. If by chance you have reached the limit for the year, instead of paying a penalty imposed by CRA, there are other savings options that could be utilized such as a Tax-Free Savings Account.
If you have debt that is preventing you from contributing to your retirement savings, there are options to help you deal with that debt so you can move forward with your financial goals.
If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options. Every financial situation is unique and viable options can differ from person to person. A conversation free of judgment and cost, is the first step to determine options for debt that make sense for you. For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.