I was inspired by this blogpost recently that argued we’ve been thinking about our savings rates all wrong.
“What if, instead of telling us how much to save, we grew up hearing how much we should live off of instead? What if your parents had made you save half of every paycheque you earned as a teenager? What if your teacher (of the personal finance class that only exists in my dreams) had told you the goal of budgeting was to live off half of what you earned as an adult?”
What if indeed…
Here’s what I know about our financial journey.
- If my wife and I save only 10% of our net income for retirement purposes, it likely won’t be “enough” money to retire on in our 50s like we want to. (This excludes any contributions to our pension plans as well). We figure we need to save more than 10% of our net income if we hope to a) retire before our mid-60s and b) fight inflation throughout retirement.
- My wife and I figure we need to save close to 20% of our net income for the next 15 years to hope to retire on our desired timeline.
- Focusing on a savings rate is a good idea, as long as this savings rate is balanced against debt repayments and other financial goals. I think it makes little sense for us to be saving madly without killing (the mortgage) debt at the same time. Being debt-free is essential to our plan.
- With lower projected financial returns from interest bearing products like bonds and GICs, I think you have few choices when it comes to earning more from your portfolio: you either take on more risk (own more equities) or you save and invest more money.
Most folks I’ve met that saved their “enough money” for retirement or for financial independence did so with a modest to high savings rate forgetting saving rules of thumb and simply saved what they could while enjoying life along the way. For the Gen X and Gen Ys out there reading my blog I think if you want retire in before your mid-60s you’ll probably need to save more, spend less, continue working or a combination of all three.
What do you think about the 10% savings rate? Is this enough for the modern retirement? Are you in retirement and did you save this much when you were working?