Like death and taxes, retirement is a reality. You can plan for it and make it what you want it to be, or you can stick your head in the sand and hope for the best. If you choose the latter, you should not be surprised if you get to your golden handshake to find your life far less satisfying than you’d hoped it would be. And since retirement will likely last 20 years or more, you’ll have lots of time to worry. Want to avoid that? Take these steps:
Sign up for your company pension plan at work
If your manager told you tomorrow that there was a way to get a raise immediately, no questions asked, would you be interested? That’s what a company pension plan that matches your savings is all about. People who haven’t signed up are often unwilling to give up the money they want to spend on other things to save for a goal that may seem a very long way away. Unwilling to give up the $125-a-month specialty channel package because “TV helps you to relax?” Think about what it’s going to be like later when it’s time to hang up your hammer. Will you be saying, “Y’know, I’m really glad I had all those TV channels; it really makes this ramen noodle diet worth it?” Probably not.
Think about how you want to live in retirement
Do you dream of buying a sailboat and sailing through the Caribbean all winter? Do you want to spend time visiting your kids and grandkids? Are you planning to buy a cottage, renovate your home or travel? How are you going to pay for it?
If you think retirement means nothing much should change in your life, despite the fact you’ll be living on a reduced income, think again. Most pension income comes in at about 60 to 70 per cent of your working income. If you’ve been living well within your means, adapting to 30-per-cent less money shouldn’t be too big a problem. But if you’ve been living to the max, burning through most or all your take-home pay every month, things could get tight.
Look at the numbers
Being a little scared about what retirement will mean isn’t uncommon. If you’re uneasy about how much of your paycheque will be replaced by income from pensions, investments and savings, it’s time to stop guessing and look at the numbers. The only way to know for sure if you will be able to maintain your lifestyle and do all the things you’ve dreamed of is to do the math. Find out how much you’ll be getting from your pension plan, how much you can count on from government benefits and how much you’ll have to make up from your own savings.
Create a budget for your retirement spending
Go over your existing budget — if you don’t have one, now you have another good reason to make one — and highlight those costs that will remain the same, those that will go down (think commuter costs and clothes) and those that may go up (think medical and, perhaps, travel). Start planning early enough and you’ll have the time and flexibility to make moves that’ll put you in a better place during retirement. You can rein in your spending. Look for ways to eliminate costs. Practise living on less now — use your estimated retirement income as your guide — and you’ll not only build some confidence about the future, you’ll add to your savings.
You can also boost your earnings. Are there ways to increase the money coming in? Look around for ways to make a little extra money. That goes hand in hand with delaying your retirement. The later you retire, the more time you have to save and the more time your money has to grow before you start drawing on it. And if you plan to work during retirement, you’ll stretch your retirement savings even further. Do you have an interest or hobby you could turn into a money-maker? Would you consider working part-time? A little extra income will make savings last.
By Gail Vaz-Oxlade