WEALTH MATTERS: 5 steps you should take today to...
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Nov 13, 2015  |  Vote 0    0

WEALTH MATTERS: 5 steps you should take today to prepare for retirement

The more time you have ahead of you, the easier it will be to meet your goals.


Getting ready for retirement takes imagination. Envision your perfect life in retirement. Start with the age that you'd like to stop working, where you'd like to live and how you'll fill your time.

Take advantage of these five steps, regardless of how old you are now. The more time you have ahead of you, the easier it will be to meet your goals.

In my own personal life, I make it a habit to review the goals and priorities that my family is looking to achieve at least yearly. This is also why we also check in with every client at least once a year to ensure their hopes and dreams (among other things) have remained unchanged.

1. Make a mock budget

Estimate how much money you'll need to maintain the lifestyle you'd like based on how long you expect to live. It's important to be realistic about this -- the average life expectancy for Canadian men and women is now in the 80s. But, if your relatives typically live until 100, or if you've had a tough health diagnosis, factor this in. You'll also want to consider added costs for medical and other benefits previously provided by your employer, if applicable.

You can use Service Canada's Canadian Retirement Income Calculator to determine how much income you can expect.

A good rule of thumb for how much income you can expect your investments to generate is $400-$500 a month for every $100,000, based on estimates from Boston College's Centre for Retirement Research.

2. Become a guerilla saver

If you're lucky enough to reach your 50s with an overflow of money to cover your future plans - this is great. Now, just stay the course.

If you're like most people, it's not too late to get on track. Start by reading our interview with Jon Chevreau on becoming a guerilla saver.

If you're able to cut your expenses today by $200 a month, the math shows that you'll benefit two-fold in retirement. What are some ways you can save $200 a month, or even $500 a month? The good news is that, like most people, once you get used to living on less, it will become second nature.

3. Adopt a low-cost, passive investment strategy

I also want to point something else out. Becoming a guerilla saver, as we mention above, means finding investment solutions that let you keep more of your money. Traditional mutual funds are expensive: Canadians pay the highest fees in the world with the typical equity fund costing 2.42 per cent each and every year. A solution like Nest Wealth that uses low cost ETFs and low wealth management fees means that you could catch up faster.

For example, say you are currently 50 years old and have saved $150,000 towards retirement and you plan to contribute $12,000 a year until 65. All things the same and assuming growth of six per cent -- with traditional mutual funds you could expect to have $473,000 dollars in your retirement fund at the age of 65. Just by reducing your fees, like Nest Wealth clients do, you could expect to see an extra $127,000 towards your retirement fund or the choice to retire three years earlier.

Armed with the knowledge of how much you need when you retire based on your mock budget, use the wealth building calculator on join.nestwealth.com to work through your numbers. What happens if you are able to save $15,000 a year instead of $12,000? What if you have more or less than $150,000 right now? You can see in real time how these changes affect your numbers.

By using join.nestwealth.com, you'll also be able to see what you could spend per year until 90. Given the same numbers above, you'd have an extra $7,300 a year to fund the lifestyle you deserve.

4. Ignore the news

Over the next couple of decades, you'll be tempted by people telling you they have a get-rich-quick strategy, by someone's idea of a good stock tip, or media frenzy of financial doomsday. But, the evidence consistently shows the best way to beat the market is be the market.

Even Warren Buffet, one of the greatest investors of all time, recommends that individual investors use index investing.

"In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st Century will witness further gains, almost certain to be substantial," he wrote in a recent shareholder's letter. "The goal of the non-professional should not be to pick winners – neither he nor his 'helpers' can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal."

5. Keep working

Your 50s are your peak earning years and a culmination of your past experience and investments you've made in yourself through education and hard work. You may be in a place in your career where you're comfortable, you may be going for a promotion, or getting further education. The key is that it's good to realize that you are your own most valuable asset and the key to securing your future.

The choices you make today determine the opportunities available to you in the future.

Have follow up questions? Please feel free to reach out to us at questions@nestwealth.com.

Randy Cass is founder and CEO of Nest Wealth and former host of BNN's Market Sense. Metroland is a strategic investor in Nest Wealth.

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(1) Comment

By One who cares | NOVEMBER 14, 2015 12:03 AM
While this is good advice, it is only about money. After you retire, and your working days are behind you, you need to do something to fill in what will become long days if you do not do something meaningful each and every day. Get a hobby . volunteer ,, take a trip you can easily afford .. otherwise the euphoria you feel for not working will quickly dissipate into loneliness and depression. Social plan and financial plan ,,, together, they will make a successful retirement.
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