This is a question I get asked a lot. In fact, it’s probably one of the most discussed financial topics out there. Some experts have created guidelines that give you an idea of what you’ll need to put aside for retirement based on your age, but there are so many other factors to consider.
How much you’ll need to save depends on what age you intend to retire at, if you have a pension, if you’ll retire with no debt, and what kind of lifestyle you expect to have in your retirement.
Personally, we’ve always followed the 10% rule – saving 10% of our gross income (income before taxes), and assuming that we’ll earn a decent rate of return.
In a recent article in the Canadian Business Journal, television host Gail Vaz-Oxlade lays it out by your age when you start saving. “If you are in your 20s, you need to save about six per cent of your income, because you have time on your side in terms of compounding interest. If you are in your 30s are you have saved nothing yet, you need to save about 10 per cent of your income. But if you are in your 40s and you have saved nothing yet you need to save about 18 per cent (the RSP contribution limit).”
Retirement planners used to assume that you would need about 75% of your current income after retirement. If you’re tracking your spending now, you should have a pretty good idea of whether that 75% is about right, or if you’ll need more or less, as you can predict what your expenses will be after retirement. While most retirees expect to have eliminated mortgage payments, life insurance (if you’re self-insured), debt repayment, and expenses related to your children (education, dental, clothing, food), many aren’t able to actually do so. 54% of Canadians will hold some debt in retirement.
What happens if you don’t save at all? The good news is, the government will take care of you (barely).
A 2010 MoneySense article talks about what a bare bones retirement will cost you. The article is about a study called Basic Living Expenses for the Canadian Elderly, which describes a no-frills retirement as one in which a couple rents a one-bedroom apartment plus utilities, has no vehicles, and it doesn’t include spare cash for even minor indulgences such as cable TV or alcohol (but does cover three nutritious home-prepared meals a day, along with typical health-care costs and essentials like clothing and personal-care products).
The study’s authors conclude that the annual cost of such a retirement in five major Canadian cities ranges from $20,200 to $27,400. The combination of full Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) program for low-income seniors would provide you with a combined $22,750 a year if you have no other income. Canadians who have worked most of their lives would also receive substantial Canada Pension Plan payouts in retirement. A couple which receives the average CPP payout, plus maximum OAS, and some GIS can expect to receive almost $30,000 a year.
So, unless you plan to live on the bare minimum the government provides, it’s a good idea to crunch the numbers to figure out where you are and then set up a plan to get where you want to be.
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A Yahoo article, which says saving is for suckers, caught my eye a few weeks ago. The article is a mess of contradictory statements and theories, but perfect for those needing something to justify their spendthrift ways.
“Welcome to the world of ultra-low interest rates, where profligacy is richly rewarded and saving is, well, for suckers. Those who've opted to be austere with their personal finances have found themselves on the losing end as governments and central bankers have worked to get people to borrow and spend in the wake of the global recession.”
The article goes on to say:
“No one is saying Canadians should abandon thrift and go on a wild spree of gluttonous consumption. Indeed, Ottawa has set up tax-free savings accounts to encourage people to save. But the competing priority of spurring economic activity means the interests of savers have taken a back seat and made it that much harder to act responsibly.”
So what is it, should we spend or save?
“Whatever happens, Ritchie Hok, an actuary living in Ottawa, is convinced savers will ultimately wind up paying the price for others' imprudence. At the peak of the U.S. housing bubble, Hok lived in Minneapolis and saw the excesses first-hand. While there he resisted those who urged him to get into the market; a wise move given prices are down 40 per cent there. Now that he's in Ottawa, though, he's hearing all the same arguments for why he should take advantage of low rates and buy a house before prices rise even further. He's convinced Canada's housing market is a bubble that will eventually burst, and when it does, policy-makers will rush to people's rescue. "My fear is that most people in Canada are now debtors and not savers, and so governments will enact policies to help them because they make up most of the population," he says. "Savers may get screwed on the way down, too."’
I don’t think the owners of the more than 2.3 million properties that filed for foreclosure in 2008 would agree that spending like there’s no tomorrow was a good idea, do you? In 2008, one in 54 homes was foreclosed on in the United States, an 81% increase from 2007 and a 225% increase from 2006. Many of these homeowners are still living in tent cities with next to nothing to their names.
Seems to me like the driving force behind Occupy Wall Street is to get the government to help people who really need it - up to this point, they've been focusing on bailing out financial institutions, not individuals. If you're in deep debt and continue to live in an expensive house and drive a Beamer instead of a beater, no one is coming to your rescue.
Should we spend or save? I'm betting on save.
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Whether your home office is the head office of your business or your household, operating costs shouldn’t overwhelm you. Especially if you’re running a business, are a serious couponer or tending to a PTA commitment, office expenses can quickly get out of hand. Here are a few of my top tips for saving money in your home office.
Design on a Dime. Sure, that adorable new desk set is only $29.99 and the beautiful cork board just $19.99, but if they’ll be covered in miscellaneous papers within days anyway, skip the matching sets. Instead, get the kids involved with making you cute magazine holders from cereal boxes and scrapbook paper and bulletin board with old frames, fabric and ribbon.
Reduce, Reuse, Recycle. The home office is the perfect place to stash scrap paper, free giveaway pens, an old tablecloth (covering the dented file cabinet you snagged for free on freecycle). Don’t forget to reduce your energy use by unplugging small electronics when you’re not using them. Turn off the lights whenever you leave the room, even if you think you’ll only be gone a moment. If you’ve got kids underfoot, a quick distraction might turn into hours away from your office with the lights on, music playing and computer humming away.
Print Smarter. Does your printer go through costly ink cartridges like Jennifer Aniston goes through bad boys? Time to upgrade to a printer that’s easier on your wallet, like the new Kodak Office Hero 6.1 printer. This printer is affordable, gives you great quality, and cost-effective ink cartridges, which saves you big bucks in the long run. It also offers must-have features for the wireless household, such as Google Cloud Printing (I can’t be the only one tired of working on my laptop in the backyard and dragging said laptop to the office to print). Visit Kodak.ca to check out Kodak’s new line of Hero All-in-One Printers.
Shop Around. Take the time to shop around to find the best prices, especially on small electronics. When my local electronics store wanted $24.99 and up for iPad cases, I found an online retailer selling them for $14, including shipping! A safety case for my iPhone was also available online for just 25% of the store's price.
Follow these tips to keep your home offices expenses under control (even if the rest of your work from home empire is totally chaotic).
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