Attention Millennials: Begin Saving for Retirement Today
According to a new survey of 16,000 international adults, Canadian parents rank among the least liable to leave inheritances to their children. The worldwide average is 21 percent, yet 27 percent of working-age Canadian adults plan to use up their financial resources on themselves and let their kids handle their uncertain futures alone. Just one of every 10 is willing to extend a financial helping hand to adult children. Most respondents don’t plan to offer any financial support like chipping in on car or home down payments.
Contemplating the Future
Those unwelcome parental decisions are daunting for many millennials, or young adults up to age 34, facing a tough job market while possibly struggling to pay down student loan debt. Other reasons for not saving for their futures now include viewing retirement as too far off to consider today. Many don’t foresee leaving the workforce completely anyway. Others prefer traveling now instead of waiting until they’re too feeble to get around.
Unfortunately, postponing the inevitable won’t help you and your future financial outlook. Be smart and heed one vital principle: The sooner you begin saving for your retirement phase, the better. Even if your initial contributions are small, they’ll grow into greater wealth over the long term. Giving your investments the benefit of time over multiple decades enables them to boost your income potential. If you wait much longer, you won’t be able to recoup lost years and prospective growth.
Still unconvinced? Consider this scenario. At age 25 today, you start allocating $2,500 annually. That means your contribution will total $100,000 when you turn 65. If your investments increase at a 4-percent rate per year, they would turn into about $247,000. But if you delay 20 years and double up your savings to $5,000 annually at age 45, guess what happens? You’ll still reach $100,000 at 65. But without the time advantage, it grows to only around $150,000 ― nearly $100,000 less.
Everyone’s situation is unique. You might want to save, but consumer and/or school debt could make covering just the basics challenging. Or other major life milestones like reserving money for your wedding, a home down payment, or baby could seem more pressing. Financial planning’s hardest task is disciplining yourself to begin saving. At your young age, retirement can be such a distant illusion that it’s far from a priority. So let’s change that.
Key Steps toward Financial Freedom
Create a budget: Determine your monthly expenses first. If necessary, collect receipts and statements to track your spending habits including everything from sodas to car payments. The results may surprise you. Check for inconsistencies when you spend too much or too little money. For instance, 30 large specialty coffee shop beverages can run up quite a monthly tab. Save half of that cost by cutting back on caffeine or ordering smaller, plainer drinks.
Consult a professional: If you’re clueless about saving for your post-career years, contact Alliance Financial Group for help assessing your present financial situation. Based on your current and future goals, we’ll establish a personalized retirement plan. Your greatest advantage is time ― something previous generations can’t reclaim. Meeting with an expert will help you use that gift wisely. Your advisor also can help you with the remaining steps.
Choose investments: A Registered Retirement Savings Plan (RRSP) offers a Home Buyers Plan so some of your contributions can go toward a home down payment. Basically, you borrow from yourself without tax implications and pay yourself back rather than a bank loan with interest. A Tax-Free Savings Account (TFSA) is a general-purpose vehicle that provides investment income. Access your money early for emergencies or let it grow to subsidize your retirement. If possible, max out your RRSP and TFSA annually and add alternative options. Strive for a diversified portfolio with tax-efficient withdrawal policies after you leave the job market.
Pay yourself first: People in debt continue ignoring every financial expert’s mantra. Paying down debt while saving for retirement is possible if your money works for you. Set a goal to overcome living from one paycheck to another. Put a proportion of every check into your savings plan first. Then pay for basic needs like groceries, gas, and loans. Use the remainder for wants, which rank last place. If you run out of money, skip nonessential luxuries like expensive meals at upscale restaurants. Put your future first, and you’ll achieve your long-term financial goals faster.