5 Simple Strategies to Retire Wealthier
1) Start small… but early
One of the greatest assets we have available when it comes to our financial future and eventual retirement is time. Being able to compound investment returns over a long time horizon makes reaching financial goals much easier.
Beginning to save and invest early allows us to achieve our end goal with lower total contributions amounts required. Let’s take a look at an example.
In this example we have two people, Jamie and Morgan, both of whom are 30 years old.
Jamie wants to enjoy life as much as possible for the next 10 years. Jamie plans to use every dollar available on experiences and items and save nothing. After this time has passed Jamie will then focus on saving and will invest $500 per month until the age of 65.
Assuming an average net return of 7% Jamie will have contributed a total of $150,000 and will end up with $391,521 at age 65.
Morgan has a different plan and will start investing right away. However, Morgan still wants to enjoy the present as well. To achieve this balance Morgan will focus on contributing to investments first and then spending what is left. Morgan’s plan is to contribute a smaller amount of $300 per month but starting immediately until age 65.
Assuming the same 7% net return, Morgan will have contributed a total of $126,000 and will end up with $513,424 at age 65.
The power of starting early and taking advantage of compounding is huge, even with contributions as low as $20 per month!
2) Automate your savings
This is one of the simplest yet most effective strategies. Make contributions to your savings and investments automatically by running a recurring deposit to that account. Often called a PAD (Pre-Authorized Debit) you can set up a deposit to your savings/investment account at any specified interval of your choosing.
These automatic contributions accomplish two things. First, it gets you in the habit of saving. It also generally only takes a few cycles before you’ve absorbed the contribution as a regular part of your finances.
Second, it allows you to take advantage of compound returns for the long run. The automatic schedule helps you make regular contributions without forgetting or putting it off for a couple months or years. To reiterate point #1 , it won’t take long before these deposits start adding up!
3) Max out your employer sponsored plan
Not everyone has an employer sponsored plan available to them but if you do, max it out! One of the quickest ways to accumulate retirement savings is by having someone else contribute money for you.
It is becoming more popular for employers to offer a pension plan or group RRSP to employees to help with retention. Generally, the employer will say you can contribute and have matched “up to” a certain percentage of your income.
For example they may match up to 3% of contributions. If you contribute 5% of your paycheque, they will contribute 3%. If you contribute 1% they will only contribute 1% as well.
Whatever the maximum amount is that you can have matched (in the case above 3%) it’s ideal to select that amount.
4) Know where your money goes
I am not a fan of the traditional idea of a budget where you break things out line by line and set spending limits for each category. My opinion is that life is too complicated for such rigid planning. However, I definitely don’t advocate for just spending and seeing how things end up.
I implement and prefer a monthly tracker where I want to accomplish two things.
1) Ensure I’m not spending more than I make
2) Know where my money is going
This helps me to identify current or potential issues such as increased spending on credit cards not related to necessary purchases. I can then make adjustments to my overall spending habits as needed and before it’s too late but without the pressure of having every budget line consistently met.
It pays to know where your money is going and in this case ignorance is not bliss.
5) Know why you’re using a certain account type
You can research and learn about this yourself or work with a professional, like myself, who can help you with this. I work with people who were told by a friend, family member or banker they should open a certain account and start saving in it.
While the bulk of this message is likely true, it’s also likely more complex. For instance, I had a client whose father told them to invest in RRSPs and start saving for retirement. The idea of saving for retirement was excellent as starting small and early pays off. However, the job they had, offered a low entry salary but with the high likelihood of promotions leading to significant raises.
With that in mind it was better to begin contributing to a TFSA while taxes owing were low and accumulate the RRSP room for later when her income was likely to be higher.
Again, a professional can help if you don’t want to spend the time and energy learning this on your own.
Following these 5 strategies will help you retire with more money in your account.
If you would like to work together on retiring wealthier click the link below and send me a message to get started!