Financial Planning and Advice

I have several friends who have commented that they are awful with money. Others, a generation older than me, have no idea how they will be able to afford to retire. My suspicion is that the friends I have today who say they are awful with money will be the ones commenting that they have no idea how they will be able to afford to retire 20 years from now.

The problem is that for people my age (mid to late twenties), retirement is something not often thought about. At least, not as it pertains to us. As a result, we don’t take action to prepare ourselves for that eventuality. Or we make a comment like I have a company pension plan or I contribute to my RRSP or I have plenty of time to worry about that later.

My advice to everyone is to work out a financial plan. It only takes an hour or two, and there are plenty of people available who can do this for you. Basically, what you are determining is how much will it cost to retire at a particular age and it takes into consideration your lifestyle, goals, ambitions, as well as your current income, expected raises and bonuses, the age at which you want to retire, and inflation.

The numbers that your plan comes up with may surprise you. They can tell you not only how much money you need saved up to retire, but also how much you would need to save monthly if you start 10 years before retirement, 20 years before, or 30 years before. For example, in order to maintain an income of $70K in today’s dollars post-retirement, you will need savings of about $2M on your retirement day, numbers not intended to be accurate. If you started 30 years before retirement, you could establish savings that size on $250 per month or $3000 per year with compounded interest over 30 years. If you half the time to 15 years, it will cost you over $1000 per month to achieve the same result.

What about the stock market and the economic crisis we’re going through?

Actually, if you are more than 10 years from retirement, this works in your favour. Graphs of the performance of the stock market over the last 75 years show that over no ten year period did the market go down, and in general, out-performed inflation by several percent. Investing in stocks at the moment may be a good idea, since you can hold onto the stocks through the end of the crisis (you’re in no rush to sell), and there are bargains to be had in tough times, if you have the money to spare.

My advice, though, is much more simple. Find a financial planner (try your bank, or ask friends for a recommendation) and ask them to help you with a financial plan. The sooner you do this, the easier it will be for you to implement your plan.