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With everything that’s been going on with COVID-19, it’s not a surprise that there are COVID-19 memes.
A friend sent me one, as a joke. It said something along the lines of ‘this quarantine is the closest millennials will ever get to retirement‘. Although it’s a joke and a bit of a laugh, it’s a real fear for a lot of people. Making the day to day expenses can be tough. On top of that, now you have to try to save for your future? It can seem impossible. But, it really isn’t.
The truth of the matter is the earlier you start the better. But, don’t think that it’s ever too late to get started. The best time to start investing is when you’re young, the second best is right now. The reason being: time.
Millennials were born between 1980 and 1996, meaning in 2020 millennials are 24 to 40 years old. If we imagine retiring at age 65, that gives us 25 to 41 years to save for retirement.
Investing and saving for retirement is one of those things where a little goes a long way. What I mean is by putting a little bit of money consistently into investments, you can be big results.
Let’s say you invest $100 per paycheck or $2,400 per year for 40 years, and you earn an annual interest rate of 7%. Over the 40 years, you’d have contributed $96,000, but you’d end up with around $480,000.
By investing your money, rather than just saving it, you’d increase your account 5 times over. It doesn’t require any extra work or time or money. You just have to take the step to put your money in a position that it can be working for you and not sitting idle.
As you’re going through life, you’re going to have opportunities for things that will help you out when it comes to saving for retirement like a group plan or a pension plan.
Group plans are a great way to take advantage of employer contributions for a retirement plan. It’s essentially free money. If your employer offers some sort of group plan look into it and try to take advantage of it. Again, remember it’s important to start now if you haven’t already. Just because you’ve had a plan available to you, but haven’t taken advantage of it, doesn’t mean you can’t now. It’s still free money so take it.
Another thing that’ll help you are government benefits. For example, in Canada as you’re working, a portion of your paychecks go to the Canadian Pension Plan (CPP) and Old Age Security (OAS). During your working years, you pay into these benefits and when you retire you can collect from them.
The amount you’ll receive for CPP and OAS depends on some factors like average yearly income and residence in Canada. But you should expect to get a portion of your living expenses from the good old government. Don’t think you don’t have to save on your own, a healthy retirement budget will contain a mix of benefits and personal savings.
For most people, their biggest expense throughout their life is their mortgage or rent. Imagine your current salary, bills, and the lifestyle you fund. But imagine you didn’t have to pay rent or pay your mortgage. That would be such a relief! You’d be able to save so much more money, and the money you make would seem like a ton.
It’s not always about how much money we make, but how you spend your money. Putting yourself in a position to spend less, means the money you bring in can go further. When you retire, if you could have no credit card debt, no outstanding loans, and no mortgage or rent, the amount you’d need for retirement decreases significantly.
Throughout a lifetime, if you rent or buy a house, I’ve read a lot of perspectives that suggest you could come out about even. For me, the big advantage is what happens after your mortgage is paid off.
Let’s look at two individuals that are retiring. The first is renting, and the second has paid off their mortgage already. Rent is $1,000 per month and doesn’t include utilities. The homeowner will pay property taxes and home insurance ($150 per month), but otherwise, their remaining bills will be similar. If we run this scenario out for 30 years, age 65 to 95, the renter will have paid $360,000 in rent. The homeowner about $54,000 in property taxes and home insurance. Now, these numbers are cheap, even for today. By the time you retire, inflation will have pushed prices upwards and rent never gets cheaper.
By eliminating debts prior to retirement, you’ll have fewer expenses in retirement. Homeownership can seem like a big hurdle, but it’s absolutely not impossible.
I know for most people reading this, retirement is a long way away. If you take little steps now, you will see big results down the road. Remember, a marathon starts with a single step.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.