Do you want to save more for retirement? You may have options you hadn't considered. Depending on your goals, you may want to take a fresh look at your spending habits, revise your savings plan, or get help from a financial adviser or debt counselling service. The most important thing is to make saving a top priority and keep looking for new ways to save until you find the way that works best for you.
The importance of saving in midlife
Saving is important at any age. But it may become especially important in midlife as retirement approaches. Here are two good reasons to save more for retirement at this age:
- You may be at the peak of your earning power. Most of us reach the peak of our earning power between the ages of 40 and 60. This means that in midlife, we may have more money to save than we will ever have again. Even if it seems hard to save now, it may be easier than it will be later in life.
- The more you save, the more secure your future is likely to be. At this stage, it's a good idea to take another look at any savings plans you developed earlier in life. Research has shown that many people under estimate how much money they will need to retire. About 70 percent of workers between the ages of 40 and 59 think that they will be able to have a comfortable retirement. But only 25 percent had saved at least $100,000, half of all workers had saved less than $50,000, and 15 percent had saved nothing. Increasing your savings now, even if it means making sacrifices, will help you achieve a more secure future.
Reducing your expenses
In order to save more for your retirement, you may need to reduce your expenses. Look for ways to save that are tailored to your present and future goals. Here are some tips.
- Know where your money is going. Reducing your expenses begins with knowing what your expenses actually are. You may be spending more than you think, particularly on out-of-pocket expenses such as food, clothing, and entertainment. Start by carrying around a small notebook and writing down everything you spend for a month. Or save all your receipts and put them in a file that has sections for the different months. At the end of the month, add up what you have spent in each category. This may show you where you could cut back most easily. Then draw up a budget that shows your goals for spending and saving. Your bank or your employee assistance program (EAP) may provide free budget planning services, such as worksheets that can help you decide how much you want to spend and save each month.
- If you are part of a couple, take a look at your spending and saving habits together. In many couples, one person is a spender and the other is a saver. And it may be harder to save for retirement if the spender makes most of the decisions about money. If you see a pattern like this in your relationship, consider trading or negotiating some roles. For example, let the person who is better with money do the shopping or pay the bills.
- Get the lowest credit card rate possible. Find out the interest rate you're paying on your cards by reading the fine print on your statement. Or call companies' toll-free numbers and ask about what annual percentage rate (APR) you are paying. The APR is the monthly finance charge multiplied by 12. If you don't pay your monthly bill in full, you pay interest at this rate on your unpaid balance. Some companies charge as little as 5 or 6 percent and others more than 16 percent. In some cases, you can even get a 0 percent card. So it's worth shopping for a card with a lower APR. Some companies will lower your APR by several points if you call to request it or may offer incentives to keep your business.
- Pay off your credit card debt. Baby boomers are the first generation to retire with substantial credit card debt, according to a survey by Myvesta, a non-profit consumer education group. To avoid problems in the future, make it a top priority to pay off credit card debts. Pay down your debts faithfully each month and try to pay more than the minimum due. Send extra money to the one with the highest interest rate. Then move on to the one with the next highest rate until you have paid off all your debts. If you have trouble paying the minimums, call the card companies and find out if they can help you get back on track -- for example, by suspending your interest payments for a few months so that you can work on paying off your unpaid balance. Get into the habit of paying off your cards in full each month so you don't have debt in the future.
- Only use debit cards so you don't spend money you don't have. You can find other ideas for avoiding debt at the Web site for Myvesta, http://www.myvesta.org.
- Consider getting budget or debt counselling. Be realistic about how much you owe. If you have so much debt that you need more help than you could get from switching to a lower credit card interest rate or a temporary freeze, you may want to get in touch a Credit Counselling Service. They provide free or low-cost budget and debt counselling services and help with setting up debt repayment plans. A counsellor can work with you on a confidential basis in person, online, on the phone, or by mail. Your EAP may also provide budget and debt counselling resources.
- Cut back on eating out and takeout meals. Canadians spend 47 cents of every food dollar on eating out. That adds up to thousands of dollars a year. So you might save hundreds or thousands of dollars a year by cooking most nights of the week or bringing lunch to work instead of buying it.
- Take advantage of discounts for people your age. You don't have to be 65 to qualify for many discounts. If you're over 50, you can get discounts on hotels, insurance, and many other things.
- Save on prescription drug costs. You can reduce these costs in several ways. First, ask your heath care provider if you could substitute a generic medication for the brand-name drug you are taking. Generic medications often have the same active ingredients as brand-name medications but cost much less. Finally, if you get your drugs from a pharmacy, shop for the best prices. You may find big differences in prices for the same drug at different pharmacies in your community. And find out if you could save still more by getting a prescription drug discount card.
- Review your insurance policies. Think about whether it would make sense to have higher deductibles on your car or homeowners' or other insurance. If so, you might be able to save hundreds of dollars a year on your policies.
- Cut back on shopping. Stay away from stores, catalogues, malls, and your favourite Internet shopping sites until you've paid off your debt or met your goals for reducing your expenses. Or figure out if you could save money by joining a buying club that offers discounts if you pay a small annual fee.
Saving more for the future
The best way to save more for retirement depends on your needs and goals. What's important is to put as much money aside as possible into savings programs or plans, month in and month out, until your retirement. Choose the plan that's right for you. Here are some options:
- RRSP retirement savings programs. A RRSP plan is a retirement savings program which can be set up with some employers that lets you set aside a percentage of your pay. RRSP's can also be set up through a financial institution.
- Pensions. Pensions are retirement plans set up by an employer for employees. Employees receive money from the plan in regular instalments after they retire.
- Savings accounts. Traditional savings accounts are offered by banks, savings and loans, and credit unions. About 90 percent of all Canadians have had this kind of account. Savings accounts pay a fixed rate of interest on any money you deposit, and the amount that you need to open one is usually very low. At some organizations, you can have money from your pay check deposited directly in a bank or credit union savings account through a payroll savings plan. A savings account can be useful if you have only a small amount to save, but the interest rate may not keep up with increases in the cost of living. There are savings accounts that receive higher interest.They pay a higher interest rate than traditional savings accounts because they require a higher minimum balance -- typically a few thousand dollars.
- Canada Savings Bonds. Canada Savings provides safe, secure investment. For more information check out http://www.csb.gc.ca
- Investments. You may also want to save through investments such as stocks, bonds, mutual funds, and annuities. You can find out if these would be right for you by doing your own research or talking to a financial adviser. A certified financial planner can help you explore some of these options. You can find a planner by getting in touch with a Financial Planning Association. If you have only a small amount to save, a financial planner may suggest that you consider the programs offered by some brokerage firms that let you set up an investment plan by making regular investments of relatively small amounts, such as $100.
Revising your savings plan as you get older
As you get older, keep reviewing your savings plan. Most experts suggest that you do this at least once a year. You may want to review your plan at the end of the calendar year or when you do your taxes so you don't overlook the task. It's also a good idea to take a fresh look at your savings plan if you:
- get a raise, bonus, inheritance, tax refund, or other source of income.
- finish paying for a house, car, or child's education.
- realize that you may need to provide financial support for an aging parent.
- are thinking about retiring early, reducing your hours, or working part time.
- may be able to benefit from changes in the economy, such as higher interest rates, if you revise your savings plan.
Keep looking for new ways to save. Many people retire sooner than they planned or face unexpected expenses after they stop working. The best way to be prepared for any changes is to make a habit of saving as much as you can all through life.
Written with the help of Jonathan Hefner, M.A., L.P. Mr. Hefner specializes in financial and legal counselling and is the Manager of Legal and Financial Services at Ceridian Corporation.
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