Many people think of retirement as a function of age. They think that it arrives at the age of 65 or 70, and that retiring sooner means an “early retirement”. To my mind, this is wrong. Your retirement date is a function of your money. If you don’t have enough money in the bank to retire at the age of 65 or 70, then you’re pretty much forced to keep working until you die. And if you’re fortunate enough to have buckets and buckets of money sitting in your cash-hoard right now, then you have the ability to retire this instant.
When you retire depends on money in the bank. When you have it, you can retire. When you don’t, you can’t. It’s really that simple.
Starting earlier is better.
If you’re in your 20s and 30s at the time of reading this post, don’t fall for the historical dogma that you’ll be working until you’re 70. There is no way for you to know every single detail of your future. Why not strive for optimism? Start saving as much of your paycheque as you can and investing it into well-diversified, broad-based ETFs. Ideally, start with 20% of your take-home pay and live on 80%. As you earn more, you save more.
Track your expenses. Live below your means so that you always have money to invest. Pay yourself first before you pay everyone else.
Set up an automatic transfer to your investment account. Ensure that your earned interest, dividends, and capital gains are all automatically re-invested. Do not spend what your portfolio earns! This money has to be re-invested until you retire because it will be the cashflow that you live on once you’re no longer receiving a paycheque. The sooner your gains are reinvested, the faster they will benefit from compound growth.
Even if you love your current job, or you stand to inheiret money from your family, do this for yourself. Inheiretances can disappear for a variety of reasons. And there’s always a slim chance that you might sour on your job at some point. In either eventuality, it’s best that you bake your own cake when it comes to funding your future.
Finally, it will take a few years to build up a nice little stash. Don’t undermine your efforts by taking money from your future. Prioritize your goals and spend your money accordingly. If it’s not important, then don’t spend money on it.
When you’re younger, time is on your side when it comes to building your retirement nest egg. Don’t waste it!
Middle aged already?
Should you happen to be in your 40s and 50s when you read this post, then continue saving and investing. I would suggest that you continue to invest in equities since you’ll need the money to continue working hard for you even after you’re retired. If you live another 20+ years beyond retirement, that’s still a long time horizon so there’s little need – in my mind – to have more than 35% of your investment portfolio in bonds. Start looking at dividend-paying investments to boost your cash flow once you part ways with your paycheque. Get out of debt and stay out of debt.
If you haven’t started yet, then what are you waiting for?
Don’t spend another second castigating yourself for not starting sooner. Start today. As you pay off your debts, do not incur new ones. Instead, put that former debt payment towards your retirement savings. Car payment gone? Great! Take 80% of it and put into your retirement savings. Mortgage payment gone? Excellent! Take 80% of it and pad your retirement account. Stuff your TFSA first – that money grows tax-free, which is the best-kind of growth to have. Next, fill up your RRSP. This money will grow tax-deferred, which means you’ll pay taxes when you take the money out of the RRSP. Finally, open a non-registered investment account and start filling that once your TFSA and RRSP room has been maxed out.
Earn – save – invest. This is the formula for funding Future You’s expenses. Don’t depend on anyone else to take care of this for you. The government will not provide for you nearly as well as you can provide for yourself. Waiting for an inheritance is a very iffy proposition. Winning the lottery isn’t a solid financial plan.
Your retirement is in your hands. Retirement is a function of money, not your age.