We’ve all heard the same song for some time now.
- Canadian debt loads are too high.
- Canadian savings rates are dropping.
- Canadians expect to work past age 66, not because they want to.
I’ve read a ton of personal finance and investing articles that state “it’s never too late to plan for retirement” or “it’s never too late to save for your future” but I’ve often wondered how much truth there is in that.
Some time ago, I wrote how about unfair it be might to broadly state that 20- and 30-somethings don’t save enough. Yes, Gen Y and Gen X should save and invest after they land that first career job but young adults and young families have many conflicting financial priorities. Any saving is better than nothing, no matter how meagre. So with those conflicts in mind I ask…when is it too late to start saving for a middle-class retirement? I mean, if you haven’t bothered to save barely anything for retirement in your 30s or 40s, is it too late to pay yourself first so you can enjoy your golden years?
My answer might be too blunt for some folks to digest but by age 50, I think if you haven’t saved for retirement yet then it is too late for you. Kiss your middle-class freedoms goodbye.
- If you delay your investment contributions until your 50s, if retirement age is 65, you’ll need to contribute more than 5 times as much to get the same portfolio value as a 20-year-old; you’ve lost too much compounding time. Use this calculator and try some math yourself.
- If you don’t save for retirement until age 50, be prepared to give up middle-class luxuries like annual vacations. Chances are you won’t able to afford those on a fixed income.
- If you haven’t paid off your mortgage by retirement, let’s say age 65, you’ll be paying off debt with fixed income in your golden years. As inflation rises and living expenses rise with it, you’ll struggle in a few years to keep up your debt payments.
- If you haven’t changed your spending habits in your 30s and 40s, the likelihood you will change your spending habits in your 50s is slim to none. The reality is, unless you have a financial intervention from Gail Vaz-Oxlade you’ll discover past behaviour is too difficult to change.
I agree in principle, “it’s never too late” to start something in life. Age is just is a number in my book. Yet if you want a modest retirement comparable to the middle-class freedoms you enjoy today; new cars every few years, iPhones, last-minute trips to sunny southern destinations then you better start saving long before age 50. If very little has been saved up to that point, unless you’re on a gold-plated defined benefit pension plan with 25+ years of service, I think age 50 is too late to turn your financial ship around. Programs like Old Age Security (OAS), Guaranteed Income Supplement (GIS) and the Canada Pension Plan (CPP) will put food on the table but it won’t provide you with the freedoms you’ve become accustomed to.
In closing, our plan is to continue saving, what we can, when we can. We’ve got a heavy mortgage to pay off and besides that, debt freaks me out, so I don’t want to look back at this article 15 years from now and wonder why I didn’t take action sooner. Every little bit counts.
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