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Get your financial house in order or keep dreaming?

 

In a recent Globe & Mail article I read “Canadians might want to stop working before the age of 65, but for the many who don’t have enough saved that retirement goal is just a pipe dream.”

That sounds rather harsh.  Maybe the truth shouldn’t cut so deep.  Let me explain.

In TD Bank’s recent Age of Retirement Report, the average age Canadians expect to retire at is 61 and when looking at the cohorts surveyed:

  • Generation Y (ages 25 to 30) plan to retire at age 59.
  • Generation X (ages 31 to 46) plan to retire at age 60.

Overall, 6 out of 10 polled said they have less than $100,000 in household financial assets not including company pensions, life insurance policies and home equity.

That sounds grave until you consider Gen Y is just embarking into their professional careers.  Most 20-somethings haven’t had any time to accumulate assets, just debt, in the form of student loans and the like.  Gen Y’s who don’t have any student debt (lucky them) are likely busy saving for their first home.  I should know, I was there 10 years ago.

We shouldn’t be surprised at the Gen X cohort, mine incidentally.  These are typically young families, learning to walk a delicate financial tightrope that includes but is not limited to:

  • Meeting daily living expenses that go with raising a family.
  • Paying down mortgage debt.
  • Making RESP contributions.
  • Making RRSP contributions.
  • Making TFSA contributions.
  • Paying down lines of credit and/or credit card accounts.

You don’t have to take my word for it.  Robb Engen who writes for Moneyville wrote an article about this as well. 

30-somethings need to juggle all sorts of financial priorities, which is really nothing new from previous generations.  In your 30s, most of us have acquired more debt than equity.  A mortgage is namely to blame.  Hopefully by our early 40s, that paradigm has started to shift with assets outweighing liabilities. 

Gen Y’s and Gen X’ers who got serious about debt and their financial plan early in life should be applauded no doubt.  They are role models for “how to get it done” for the rest of us. 

If you’re a 20-something or a 30-something, don’t be too discouraged by these types of reports.  There is always room for better financial health.  We all know that.  I suggest we use these reports as a trigger to look at our own financial situation and see what can be done just a little bit better.  Look forward, not down.  Be optimistic, not pessimistic.  Take a couple of small steps forward every month and every year. 

Time is on our side.

What do you think?     

 

Filed in: Goals & Planning

34 Responses to "Get your financial house in order or keep dreaming?"

  1. Echo says:

    Thanks for the mention, Mark. Whenever I read reports about how 30-somethings are ‘screwed’ I think of the book, The Millionaire Next Door, and Stanley’s calculation for becoming a prodigious accumulator of wealth. The calculation just doesn’t make any sense until you enter your 40’s.

    People in their 20’s and 30’s are just starting their careers, trying to balance saving and investing while paying down debt and raising a family. We just haven’t had the time to accumulate a lot assets (not including primary residence).

    I’m more concerned with Baby Boomer’s who are counting on their residence to provide them with a retirement nest-egg than I am about 30-somethings who haven’t started saving for retirement.

    • No sweat. I enjoyed your article.

      You’ve got a great point about wealth accumulation, hopefully by our early 40s things will really start ramping up with assets way ahead of liabilities.

      I too worry about folks in their 60s who haven’t paid off their homes yet and carry a significant LOC. That is absolutely not a good place to be.

      Thanks for your comment! Will be over to your site this week.

  2. Getting our financial house in order is something we are trying to make a priority this year. We really want to up our investments and savings.

    Like Echo said though, we are just at the beginning so to speak and have a hard time balancing things right now. In the future we will be in much better shape.

    • Hey Miss T – we’re always trying to get our financial house in order! :)

      Seriously though, great for you. We also want to ramp up our investments. We’re doing OK I guess, but could be much, much better.

      There is such a big juggling act in your 20s and 30s regarding financial priorities. What are your top-3 if I might ask?

  3. Mark,

    Good stuff here. Sometimes some of these articles from the media are a little harsh and unrealistic. It shouldn’t really be surprising to read that people in their mid-30’s don’t have $100k saved up.

    On a separate note, do you know of anyone personally that never plans on owning a home? I mention this because you mention the costs of a mortgage a few times in this article. I’ve looked into it quite a bit and personally I think I may continue to rent for many years into the future. Of course, I don’t plan on having a family…so that factors in.

    Just wondering your thoughts on that.

    Best wishes!

    • @Mantra,

      Agreed, the media can be a little harsh to the younger generation. It certainly isn’t surprising to me most folks under 30 don’t have $100K in assets. It would surprise the heck out of me if most folks under age 50 did. That wouldn’t be good.

      Regarding your question, I don’t know anyone (now) that is not planning on buying or owning their home at some point. I used to know a guy, that swore by renting but have lost touch with him. Yes, I mention mortgages a fair bit in this post and others because they tend to be the biggest asset and liability anyone will ever have in their life. We live in a nice community so we’re fortunate our house has some nice value. We also have a big mortgage that requires some aggressive pay-downs for that asset to really appreciate over time.

      Interest rates are dirt cheap, so if you have capital, I think it is an excellent time to buy. That’s just me. As for the house and a family, never say never Mantra. Sometimes life happens :)

  4. Aloysa says:

    I am somewhat scared even to think about retirement. I came to the US 12 years ago, so I started saving for retirement late. So, I am not even sure if I am going to be ready to retire by 65! I want to but who knows! Retirement is a scary topic. For me…

    • Aloysa,

      Don’t be scared. It’s a LONG way off. Break down your financial goals into small chuncks that can be realized – no matter how small. I’m sure you know that. It’s doesn’t have to be a scary journey.

  5. Nice post! I read that the Canadian Government abolished the mandatory retire age of 65. I think their intent was to take pressure off the Canadian Pension Plan fund. However, with the way things are going that decision may also be doing people a favour because a great percentage of Generation X and Ys won’t be able to afford to retire at 65 anyway. They will have to work past 65 just to make ends meet. Times have changed.

    • Thanks! The thing is, OAS used to age eligible at 70. It is now 65. Moving it to 67 isn’t that grave although it’s definitely a change.

      I’m not trying to rely on the government for anything. If I get OAS, great. If not, I’ve done something right with my investments.

      Baby Boomers have certainly put Gen X and Y is a difficult spot. We’ll have to rely on ourselves to dig out of it. Times have changed for sure.

  6. @My Own Advisor
    I think my husband would say one thing and I would say another. lol. It’s a balancing act that is for sure. For me, saving for a family and school for the kids is big, as well as an emergency fund, and money for things around the house. I would like to have the house in shape before the kids come and yet still have money if disaster strikes. Then it would be vacations and retirement after that. Probably not the best order to do things.

    • @Miss T,

      Ha. Yeah, a balancing act. I hear ya. My wife and I talk about our finances rather frequently, even though she doesn’t like talking about it for very long!

      Sounds like you have some pretty good priorities in check: family savings, emergency fund. I know many years ago, it seemed like I couldn’t save. Now, I make many payments automatic and it seems to help. I can only spend what I have left over after savings and investments are made.

      We also don’t take any vacations until we have the cash in our account. That way, any trip is paid in full before we go.

  7. Good post.

    Personally, I think most 20-somethings should strive for a six figure amount of financial assets before hitting age 30. It can be achieved rather consistently if one gets a decent job out of college, with a few reasonable exceptions such as those that attend medical school and so forth.

    • @Monk,

      Thanks for your comment, as always.

      If 20-somethings can have a 6-figures in assets before 30, that’s pretty darn good. Are you including a pension in that figure? Curious.

  8. I can’t imagine being 60 and not paying off my home. To be honest, I get kind of upset about it. I have been reading a lot of letters in the paper lately about these young seniors who are so upset about possibly having their OAS cut back. This is ridiculously selfish when you see the financial burdens that are being placed on our generation, especially when you consider our cost of living relative to the average wage, and the cost of education being ratcheted up.

    I hope to have my home fully paid off by the time I’m 30 with my Smith Manuevre in full swing. I also hope to be maxing out my RRSP (not that much because of my teacher’s pension), and TFSA by the age of 30. That will give me a nice mix of registered and non-registered account going forward. No depending on government handouts going forward for this guy!

    • @MyUniversityMoney,

      I can’t either. 60 is way too late to be paying off a mortgage. I know I don’t want to be in that position, because I see it, with my parents. That’s a totally different post!

      Yes, I get annoyed by the same thing. OAS is just that, Old Age Security not a government pension. It is a generous government program in my opinion. We should be lucky we have it. Employment history is not a factor. You only have to live in this country for an extended period to get the full meal deal. Clawbacks for OAS start around $70K. If you make $70 K as a retiree you don’t need much more govnernment “security.”

      I may take some heat for that comment!

      Your plan to have your teacher’s pension, RRSP, TFSA is indeed a nice mix. You and I sound the same. Except I’m an old goat in my 30s :)

  9. I basically ignore this type of media chatter. There’s no dreaming about retirement here – MMD is going to retire well before age 60. You can’t control how much the stock market is going to make in the future. You CAN control how much you save and your strategy for keeping costs down and not being too risky with your money. Basically defense is what is going to win in the long run.

    • @MyMoneyDesign,

      Great point, you can’t control was the stock market will or won’t do. You CAN control your savings habits and avoid risky investments.

      I figure if all investors can be mightful of expenses, fees, taxes and finally their own behaviour – that’s a pretty darn good start!

  10. Great post :) I’m gonna link to it.

    I was talking to a few older colleagues and they were all worried about the age 67 thing as well. It’s just so far away, retirement at 60. I would also be concerned if homes weren’t paid off by 60 as well. I’m aiming to pay mine off at mid-40’s or earlier hopefully.

    • Thanks Y&T!

      I too, would be concerned if I was in my 60s, with a mortgage, but like you I hope not to be in that position. Hopefully in another 10 years, in my late-40s, the house will be paid off.

  11. SPBrunner says:

    @Dividend Mantra
    Dividend Mantra: I never owned a home. I have lived in an apartment building in my city center most of my life. I got married and had a child. I did own a cottage when my child was growing up.

    I have the cash flow to rent and enjoy down town living and I would not have changed anything.

  12. SPBrunner says:

    I know that my generation has unfairly saddled the next generation with huge debt. However, when I mention this to my friends, they look at me in surprise that I would think that.

    • @Susan,

      Yes, that is true :) But, many of us will get through as did previous generations. I’m not convinced our challenges are worse than any other generation, just very different. Thoughts?

  13. @SPBrunner

    SPBrunner,

    Thanks for responding. I appreciate that, especially coming from someone who has done what I’m trying to do (retire early and live off dividends). That’s interesting that you use the cash flow from investments to rent, instead of using cash to buy and incur the lost opportunity costs. I’ve done the calculations over and over and it seems that on a dollar-to-dollar basis renting comes out ahead (just plain cheaper), whereas buying comes with emotional/psychological benefits not easily measured in terms of money.

    Thanks for reaffirming my thoughts! It’s much appreciated.

  14. SPBrunner says:

    @Dividend Mantra
    I think that buying or renting might come down to life style. I enjoyed living down town and so did my husband. If you want to live outside a city center, you probably have to buy.

    People thought we were depriving our child of playing outside, especially during summer months. However, we both worked so that our son was in day care and there would have been no time after we got home for him to play outside because it was dinner time.

    I then bought a cottage and it was a great get away for the weekends. It so happened that my sister was a school teacher and she therefore had the summer off. She spent a lot of summer time at the cottage and was quite willing to look after my son at the cottage while she was there.

    Also, I know that my parents had planned to use the proceeds of their house in Thornhill to help fund their retirement as they were moving to Bobcaygeon at retirement time. The value of their house had been rising for quite a number of years. However, 5 years before they were to retire, property values started to come down. They still retired but got a lot less than they had expected for the house. They also sold because at that time they did not see the market improving anytime soon.

    You never know how live will turn out.

  15. SPBrunner says:

    @My Own Advisor
    My parent’s generation left the economy is rather good shape and also left their children an estate. The estates were not as large as they thought they would be because their final years were expensive, but they still left some money.

    Do not forget that the economy produced a huge amount of jobs for the baby boomers. This was especially true for the early boomers. Do not forget that in my parent’s generation few women worked, but in mine, practically all expected to get jobs out of school. The boomers were also a very large generation. There was an incredible increase in jobs to accommodate the boomers.

    I have read a lot about economics. Basically if government takes out more than 30% of the GDP then the economy will grow slower. People mentioned this occasionally, but the boomers felt that lower growth was a good trade off to get more money, goods and services from the government.

    One of the effects of lower growth rates are fewer jobs are created. This is one of the reasons, but not the only one, that is causing high youth unemployment.

    The other thing we have done is run up a huge and unsustainable debt. There are three components to this debt that are unsustainable. Government employee’s pensions, government pensions and health care. All are increasing at a rate that is unsustainable.

    Government pensions include both OAS and CPP. Why people like government pension compared to private, is that they not properly funded. You can get far more back on government pensions that you put in. (When people talk about the funding of CPP, they do not say it is fully funded, but that it is sustainable for x number of years.) All government pensions are the same.

    I have heard otherwise very smart people say that countries cannot go bankrupt. They have not read history. Lots of countries have done this. Greece has done it several times since WWII. Lots of European countries have. Spain has gone bankrupt spectacularly several times. Looking for when other countries went bankrupt I found this site.

    Anglo-Saxon countries have done better than most. England has not gone bankrupt since the 12th century, even though they had trouble paying WWII debts, but did pay them in the end. Canada, US, Australia and New Zealand have not gone bankrupt at any time, although New Zealand came close in 1979.

    Do not forget that pension age was set at 65 at a time when few people lived to 65. Live expectancy has increased substantially.

    So my answer to your question about having more challenges than other generations. Maybe not, as all generations do have their challenges. However, my generation and certainly left the next generation far worse off than what was bequeathed to us. (And, we complain about a measly move of pension age from 65 to 67.)

    Sorry my response is so long.

    • Don’t apologize Susan. I enjoyed reading those details.

      I don’t disagree, based on everything you have written and what I know, your generation didn’t give us very many financial favours :(

      The move of OAS from 65 to 67, at the individual level, is trivial. My goal is not to rely on the government at all. My own investments. Anything the government gives me or can afford to give me in 20 years, is gravy.

  16. We have bought, but have some assets around too, thankfully. I hope we can keep a high savings rate up so that we are not dreaming too much. ;)

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