Despite Canada having a robust pension plan, the Government-funded support won’t be enough for most people to live comfortably. To live your dream retirement with financial freedom, you will need to build up a nest egg of savings and make smart investments.
Many young and middle-aged Canadians aren’t ready for retirement. If you’re looking ahead to the future – and you should be – you can get on the right path by first understanding why your retirement isn’t secure.
Here are 10 things that hold people back when preparing for retirement.
1: You are Struggling to Pay Monthly Bills
If you can’t afford your monthly bills, then you’ll have nothing left to save for retirement. Living within your means is key to a secure future.
If your expenses are more than your income you will get stuck in a debt trap that lasts your lifetime. Reassess your finances today, create a budget, and move towards living within your means. Make small sacrifices to enjoy significant reductions in expenses throughout a calendar year.
When you get on top of your monthly finances, you’ll be able to shift your focus to savings and investments that generate returns that can go towards your retirement.
2: You Have a High Level of Debt
Paying off high levels of debt will reduce the amount that you can save for retirement. High-interest loans should be eliminated as early as possible. Ideally, you need to have paid your mortgage long before you retire.
You can consolidate debt by leveraging the equity in your home, with more manageable repayments. Reducing your debt and the amount of interest you pay on it will take you a long way towards securing your retirement.
3: You Don’t Have a Safety Net for Major Expenses
It takes only a single emergency to derail your retirement plans. Unforeseen expenses can put your savings back by months, so it’s important to build up a safety net. Some people do this by building equity in their homes to leverage later. However, the best way to approach a safety net is to save.
Putting money aside in a high-interest savings account will help you to build a safety net. You should save as much as six months of income so that any unforeseen expense or even a loss of employment can be covered without denting your retirement planning.
If you never have to use a safety net, that’s more money that you can put towards retirement, and interest will grow your savings over time, long after you reach your goal.
4: You Aren’t Leveraging Your Home Equity
Your home is one of, if not the biggest purchase that you will make in your lifetime. It will become a significant asset that can be leveraged in several ways.
The equity you own in your home can be used to secure credit, can help to finance new real estate investments, or it could simply serve as a form of a nest egg to leverage (with a sale or Home Equity Line of Credit) once you enter retirement.
Owning a home is versatile as far as being a financial asset, and it’s much more than just something that you can sell later in life. A private equity firm can help you to maximize the benefits of homeownership.
5: You Aren’t Budgeting
Budgeting is critical to retirement security. If you aren’t budgeting today, you will find it difficult to save and manage your finances. Setting a budget and sticking to it, rather than living from payday to payday, will help you to reach your financial goals and secure your retirement.
- Budgeting gives you a guide to control your spending.
- It helps you track financial goals like retirement or a home purchase.
- With a budget, you will be less likely to feel financially overwhelmed.
- Budgeting can help you to avoid or pay your debt.
- With a budget, you’ll be better prepared for emergencies.
- You’ll know exactly how much you can afford to save for retirement.
If you have never budgeted, it’s time to talk to a financial advisor to get your money in order and prepare for the future. Small sacrifices today can have a significant impact on your retirement security.
6: You Haven’t Considered Inflation
Inflation can have a significant impact on your retirement. Your nest egg could have less purchasing power, dollar for dollar, by the time that you retire. If your income doesn’t scale with inflation you may need to save more throughout your retirement, increasing contributions as you age.
If you don’t increase your savings or other retirement security like investments in real estate and equities, then your basic expenses like food, non-public healthcare, utilities, and other necessities could become unaffordable, or close to it.
Some investments scale well with inflation, such as real estate investments and energy sector investments. It’s important to reassess your retirement plan every five to ten years to ensure that you’re ready, with inflation considered.
7: Your Savings Aren’t Enough or are Non-Existent
To follow one of the basic rules of retirement, saving 15% of your income, you’d need to start saving at 25 years of age to retire at age 62. Many people don’t think about retirement into their 30s and some start saving late, well into their 40s.
No matter what age you are today, if your savings won’t support at least 15 years of retirement, then you’re already behind and your retirement won’t be secured. It’s time to start thinking about saving more and making whatever lifestyle changes are necessary to increase your savings.
Beyond savings, there are other ways to secure your retirement.
Investing in a home, building equity, and potentially leveraging the equity to invest in an additional rental property for income could make your retirement more secure. Other equities can also increase your retirement security with income or financial assets that can be sold to help fund your retirement.
Savings are the basis of most comfortable retirements, so start saving as much as you can, as early as possible. Compounding interest can have a dramatic effect on your nest egg over your working lifetime.
8: You Aren’t Mentally Prepared for Retirement
Retirement is a major change in lifestyle and many people simply aren’t mentally prepared for retirement. This can lead to poor planning or even some anxiety when it comes to enjoying your golden years. Everybody needs to retire eventually. More importantly, you should want to retire at some point.
Thinking about retirement, how you will spend your time, and considering all the financial aspects can help to put you in a better mindset. The most important thing is that you become financially secure long before retirement. This involves saving, growing, and leveraging your home equity, and making the right investments that allow for more financial freedom.
9: You’re Planning to Spend Too Much in Retirement
Many people approach retirement expecting to spend up to 4% of their savings per year. This used to be a sound approach, but with people living much longer with better health and social services available to them, it’s more realistic to consider spending 3% of your savings per year. If you have a particularly high income then these figures could be adjusted, and every situation is different. If you are planning to spend more than 3% or 4% in retirement and haven’t saved enough to sustain this for at least 15 years, then your retirement won’t be secure.
The average Canadian has a life expectancy of just over 82 years, of course, many people live much longer in good health.
10: You Don’t Have the Right Financial Advice
Some people do everything right but still struggle. In many cases, they simply didn’t get the right advice or discover the best opportunities to reduce debt, leverage their assets, and prepare for retirement.
If you own property, then you already have a significant advantage when it comes to retirement planning. A local private equity firm can help you to realize the full potential of your finances.
3FC Acquisitions Inc. is a Private Equity Fund Management Company that focuses on growing private investments in the Financial Instruments Sector. We focus on acquiring profitable businesses that are five to ten years old and have a proven record of generating strong returns. Our experience in management, sales, leadership, marketing, and our tenure in the equities market helps us to evaluate and support our acquisition investments to create pathways for sustainable growth.
We can help you to secure your retirement. Book a 15-minute consultation with us today and learn how we can assist. Call Wendell John-Baptiste at 905-425-2002 and Gaston John-Baptiste at 289-939-2318 or email us at email@example.com today.