I Wonder If I’ll Ever Be Able To Retire?

With all the recent news about inflation, cryptocurrencies, market crashes, and everything else, the scary thought of if I’ll ever be able to afford retirement crossed my mind.

For retirement, if you fail to plan, then you’re planning to fail. Photo Credit: Anukrati Omar on Unsplash

Some days I think yes, everything will be great, and retirement will be fantastic. Other days, I think I’ll be working at one job or another right till the bitter, bitter end. That future frightens me. I don’t know for sure what my financial future holds, but I do know that I can at least take some actionable steps to give myself the best possible shot at a quality and worry-free retirement.

Why Am I Thinking About Retirement?

These retirement thoughts surfaced because of a few things that happened recently.

First, I subscribe to a couple of investing email newsletters that I read every morning. The authors have been talking (fearmongering) a lot about retirement lately, mainly because of the third reason; inflation, which has been the hot topic of the financial world lately.

Second, I received my annual pension portfolio holdings package from my job, and, well, it isn’t a fortune.

And finally, my superintendent at work retired after 31 years on the job. I found myself envious of him as he grabbed his bouquet of retirement flowers and his briefcase and walked off the property for the last time, onto life in retirement. I thought, “Good for him. He must feel like a million bucks.” But, of course, I hope he’s saved a million bucks, too. Actually, I hope he’s saved $1.9 million.

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The Emails About Retirement

The newsletters I receive have talked a lot about inflation and how much you will need to retire. The magic number used to be 1.5 million USD, but now it’s 1.9 million USD. A million dollars isn’t what it used to be. Also, bad news for us Canadians because with the exchange rate, that’s 2.33 million CAD.

2.33 million CAD, eh?

Now let me take a quick look at my banking app. One minute, please.

Yup. Just as I suspected. I do not have that $2.3 million saved. Darn it.

That’s ok, though, because I have lots of time to save. I hope.

Hold on, let’s not hope. Let’s do some math instead.

I’m 38, and I hope not to be working past my 60th birthday, but “hope for the best and plan for the worst”, right?

Let’s say I want to retire at 68. I have 30 years to save.

There are many online “retirement calculators” online now. For example, I went to Wealthsimple’s Free Canadian Retirement Calculator and inputted all my rough numbers:

  • Age
  • Current income
  • Current savings
  • Percentage in Registered Accounts such as an RRSP or TFSA’s
  • When you plan to retire
  • How much do you expect to spend in retirement (~70% of your pre-retirement income)
  • How much do you plan to save each month

It looks like I am going to be about $483,000 short of “what I’ll need” (to spend $45k per year in retirement), which comes to $1.21 million. This number is also well short of the $2.33 million I “need” for retirement.

Bummer.

The good news is that all of these numbers (except age–dammit!) can be improved.

I can increase my income, savings, and the percentage contributed to an RRSP and TFSA’s. If I can change it enough, I might even be able to retire earlier.

I found that if I earn a little extra money (which I will) and save a little more (which I can), my retirement lifestyle numbers will add up.

Right on!

You can check out one of the retirement calculators and play with the numbers, or you can go to your bank and talk to a professional.

A Word of Warning: Over-Shoot Your Target

One of the “stories” in the newsletters talks about how one reader had saved $1.5 million US and retired. Unfortunately, his daughter got married, he bought a condo in Florida and a few years later, and then he only had a couple hundred thousand left. He had to go back to work. Whether this story is true or not is irrelevant because it has undoubtedly happened to many retirees.

The story’s point is a warning: you need to have a plan and a more significant nest egg than you thought for retirement.

Not enough money to retire was in my thoughts this week.

The Pension

I love the idea of having a pension, but I wish mine was bigger and that I didn’t have to keep working to make it bigger. I think everyone probably does, short of maybe Jeff Bezos, retiring from Facebook this week. I assume he is pretty comfortable with his monthly pension cheque.

If I wanted a half-decent pension, I could continue to work at my job for the next 30 years, but that’s not in my future. I am going to earn my living writing and travelling the world.

However, if you’re lucky enough to have a pension coming to you after your done working, most of your retirement worries are covered. I know more than a few people who work at a company with a pension plan if they could do it over again.

Many people are also taking a partial pension and then supplementing it with savings and/or additional revenue streams. This is the category I am planning to fit into. A partial pension was one of my thoughts this week.

Inflation

One of the biggest problems for retirees is inflation.

Inflation, according to Investopedia, is the decline of purchasing power of a given courtesy over time. In terms of your retirement fund, inflation means that the amount of money in your fund right now won’t buy as much stuff in the future as it does today.

Inflation has been in the news lately because it is part of the fallout from the coronavirus pandemic. The United States has been printing money in the form of stimulus checks to the tune of $391 billion US, as of May 26, 2021. That number will likely increase. This “stimulus” money is supposed to keep the US economy from crashing. But from where is that money coming? And at what price are we going to sacrifice the future?

The United States has been “printing” money, as of late, contributing to high inflation. Photo Credit: Sharon McCutcheon on Unsplash

According to TheDenverChannel.com, the government borrows money from private investors, foreign entities, and other governments. Then the treasury department issues an IOU, which they’ll have to pay back with interest. Then the Federal Reserve “simply adjusts their books and delivers a form of computer currency to Treasury Department.” If that sentence doesn’t make you question the dollar’s future buying power, I don’t know what will.

However, it also says that most economists think the US is not at risk for inflation as long as the country keeps producing goods and services–aka keep the GDP high.

But inflation is all about a balance of supply and demand, and the coronavirus pandemic fucked up the parameters of that balance.

The pandemic caused demand for many products and services to go down, so the supply stopped. Now, as the world starts opening up and getting back to normal, those dysfunctional supply chains cannot keep up with rekindled demand. So then, when there is demand for items where there isn’t enough supply, prices increase.

Ever taken an Uber during peak times or bought a turkey at Christmas? More expensive, right? This is the same supply and demand principle, but now applied to entire industries and costly products such as:

  • Travel
  • Hotels
  • Lumber
  • Sneakers
  • Rental Cars
  • Computer chips
  • Paint

“Inflation has come in above expectations”, said Jerome Powell, chairman of the Federal Reserve, said on June 16.

While he doesn’t expect inflation to stay at these levels for too long, you never know. It may take a while to un-fuck the supply chain issues.

Higher prices right now have many people–myself included–worrying about how they will afford things in the seemingly much more costly future.

Inflation killing whatever savings I end up having was in my thoughts this week.

What Can We Do To Worry Less and Plan More?

Many millennials have a bleak outlook for their financial future because things are different from when their parents were their age.

I have this same negative outlook myself sometimes. I look at all the “stuff” that my parents had when they were my age, and I think, “I don’t have any of that stuff. I’m screwed.” But a lot can happen in 30 years.

If you’re like I was a few years ago–in enormous debt, struggling to find my purpose, and wondering how I would have a decent working life, let alone retirement–that’s OK.

Trust me; things will get better as long as you take some action and have a plan.

First of all–and I cannot stress this enough–make sure you are out of debt before you start saving. If you’re in debt and saving, you’re losing money to interest on your debt (yes, interest works both ways and is usually higher interest against you than for you), and you will end up using your savings to pay off the last of the debt anyways. Believe me, I know firsthand. I was in pretty dire financial trouble only a couple of years ago, and I finally clawed my way out.

Now that I am out of debt, things are looking brighter. Now I have started saving. Now I am learning about finance and taking actions to help me save, which should put me on a path for a comfortable retirement.

If I can get out of debt and implement a plan for a decent retirement in one year, you can too.

What Does A “Comfortable” Retirement Look Like?

A comfortable retirement is like a good chair: it requires four sturdy legs to remain standing. Here are the four requirements (legs) for a comfortable retirement (chair):

  • Pensiona pension plan is a retirement plan requiring an employer to contribute to a pool of funds set aside for a worker’s future benefit.
  • Social Security/Canada Pension Plan — any government system that provides monetary assistance with an inadequate or no income.
  • Personal Savings — the money that a person, rather than a business or organization, keeps in a bank or similar organization.
  • Family and Friends — people who hopefully like you enough to lend you money if you go broke. Don’t laugh; it happens.

If you can keep those four legs intact and “full of money”, you should be in good shape for retirement.

The Four Pillars of Retirement are Pension, Social Security/Canada Pension Plan, Personal Savings, and Family and Friends. Photo by SCOPIC LTD on Unsplash

Some Easy Ideas To Consider

There are many ways you can start to build some wealth to use in your retirement. Do some research, make a plan, and talk to a professional when you need to.

I have done a few simple things to save money and put myself on a path to retirement:

  1. Opened a TFSA / Roth IRA account — If you’re like me and just getting started with saving and investing, you’ll want to try to max out your TFSA (Canada) / Roth IRA (USA) contributions. A TFSA is the Canadian equivalent of a Roth IRA. It stands for ‘Tax-Free Savings Account’, meaning you can contribute a limited amount to the account, which can be taken out and used tax-free at any time, including in retirement. The amount you can contribute to your TFSA per year is different for everyone and can be found on your tax return. Generally, any money you make from investments (capital gains) is also tax-free. Consult a professional to be certain when withdrawing from your TFSA.
  2. Opened an RRSP account — Once you have contributed as much as possible (maxing it out) TFSA/Roth IRA, you can start thinking about an RRSP (Registered Retirement Savings Plan). But, again, talk to a financial expert once you have reached this level of savings to maximize your contributions and know your tax implications.
  3. Automated my savings — The best way to save money is to do it without thinking about it. Set up an auto-deposit of however much money you can afford into a TFSA/Roth IRA account every week. Do this right now because it adds up quick, and the earlier, the better.
  4. Save as much as possible — Everyone has their preferences on what lifestyle they want to lead. For many people, myself included, because of how much I earn, I have to choose between having all the small things I want now or saving for my future. As someone who has been in reasonably significant debt, I have no problem forgoing a $200 pair of jeans for the Walmart brand if it means I can invest more in my future and not go back into debt. Your savings amount is entirely personal but remember: every dollar spent is a dollar not saved for retirement.
  5. Invested my money — Again, talk to a professional financial advisor before jumping into investing, or at least do your research. Simply “putting your money into the market” does not guarantee you to make more money. The stock market is a complicated entity that should be navigated with caution. For me, I like contributing a set amount per month (also known as Dollar Cost Averaging) to an Exchange Traded Fund (ETF) that has low fees and follows the S&P 500. This plan will grow your money at about a 10% rate (almost 14% this past decade) given enough time, meaning that the market (and your money) will go up over a long enough timeline. Ten per cent in the market is much more than the one or maybe 2% you’ll get with a simple savings account. *Note — Inflation was recently at 5% for May in the US for 2021, so your money in a regular saving account actually lost money on 2% interest.
  6. Don’t take my money out unless I have to — There is an old saying that goes, “time in the market is better than timing the market”. Unless you’re a professional, don’t try to time the market. Timing the market is attempting to “buy low and sell high”. Timing the market is tough to do. If you’re a beginner like me, go with Dollar Cost Averaging in an EFT until you get some experience in finance and trading. Statistics say that if you leave your money in an EFT that tracks the market, like an S&P 500 EFT, your money will appreciate eventually. It might not be this year, but averaged over time, you will make money. Don’t use your stock investments like a chequing account. Try to keep it in the market for as long as you can. Again, it’s much easier to “set it and forget it” with auto-deposit payments and let the market do its thing.
  7. Have a plan for when I need to take out my investments — When talking to a financial advisor, the first thing they want to know is when you want to take your money out. There are very different investment options depending on if you need to use your money in 3 years or 30 years. If you plan to save for retirement, then plan your investments around that time horizon. If you plan to buy a house in a few years, you might want different assets for that time scenario. The financial world is vast and complex, so talk to a financial advisor to get your best options.
  8. Invested in some gold/commodities/REIT’s/bonds — These types of investments diversify your portfolio and will hedge against inflation and market corrections, meaning they protect against the decreasing value of a currency and market crashes. Talk to a financial professional to see which are best for you.
  9. Invested in a bit of crypto — Cryptocurrencies have taken the financial world by storm in recent years and are growing more popular every day. They can be very volatile and present a significant risk, but they also offer a chance for substantial gains. Presently, the industry sentiment is only to invest in crypto what you can afford to lose. This is sound advice. Don’t put all your money into what might be a risky investment. Do some research or talk to a professional and see if they are a suitable investment for you.

These are some of the steps that I have taken for the sake of a decent retirement. Some may be right for you, and some might not. The point is for all of us to start thinking about our golden years. So do some research, make a plan, and talk to a professional.

Final Thoughts

I have worked hard to get where I am in life, as I am sure you have, and I want that to count for something at the end of the line. Up until a short while ago, I wasn’t sure retirement was in my future. Now, I am planning and saving for a fruitful and fun retirement one day. You should too.

Unfortunately, no one has a crystal ball for the future, but as long as we try to plan for success as much as possible, we should land safely on the black side of the ledger in retirement and live out our golden years as stress-free as possible.

This article contains the viewpoints of the author and should not be construed as professional financial advice. Consult a financial professional before making any investment decisions.

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