For people coming of age in the 1950s and ‘60s, the steps to a secure financial future had a predictable order: complete schooling, buy a house by your mid-20s, pay down the mortgage by age 50, and then spend your final 15 years in the workforce saving for retirement.
Today, these steps don't unfold in the same sequence anymore. We're spending more time (and money) in post-secondary education. We have fewer children — often later in life. And in many parts of Canada, housing is taking a bigger bite out of our paycheque than in previous generations. We might not pay off the mortgage until the age of 60, or even in our retirement years. Far fewer of us can count on an employer-sponsored, traditional, defined-benefit pension.
As a result, the retirement planning advice that worked for our parents may no longer work for us — meaning we need to forge our own paths for a successful financial future. These new rules of finance can help.
1. Recognize the differences between then and now.
Today's savers may need to follow a different set of spending and saving practices than their parents or grandparents did, in the name of a financially secure retirement. This might look like starting dedicated saving for retirement earlier in your 30s or 40s, when you are also balancing other financial needs such as paying down a mortgage and caring for children at home. The benefit of starting retirement savings early means more time for those savings to compound before you need them, so you don't have to ramp up savings as much in the decade before retirement.
2. Identify your options.
How you save for retirement will depend on the options available to you, and those have changed significantly over time. For example, years ago, many more workers participated in defined-benefit pension plans that automated their retirement savings ― and options such as Tax-Free Savings Accounts (TFSAs) are relatively new. Once you've recognized what your specific needs are, then the next step is to figure out what will help you and what options will not.
3. Gather information to create your personalized plan.
The good news is that information, advice and support for retirement planning is more accessible than ever before. A professional who knows you and your situation can work with you to identify gaps in your plan and guide you through solutions. Whether you're just starting out to plan for retirement or you're putting on the finishing touches, there's a wealth of current information that can help define your personal approach to retirement.
These 3 rules can set the framework for your planning over the next few decades, helping you create a plan that recognizes your realities, builds on your strengths, and meets your today and tomorrow.