If tough times call for tough measures, do tricky times call for tricky measures? Maybe so. Some advice for making the most of what you have:
Adapt
Many people assume they will retire in the suburb where they are currently living. Ask yourself, why? Why not downsize to an out-of-the-way town or city where living is cheaper and so is the real estate? Many people move to lower cost areas of the country or even out of the country.
You can also find a dramatic increase in savings if you chop out some unnecessary expenses such as restaurants, expensive entertainment, extra vehicles, luxuries and/or travel.
Postpone
Don't assume you have to drop out of income-making the day you turn 65. Imagine how much your retirement savings will continue to grow or how much you will be able to add to your savings in a period of six months or one year or three years. The benefits of extending your earning time are actually threefold: your investments and savings get a chance to grow; you increase your pension savings; and you reduce the time you will be drawing down your retirement savings.
And speaking of drawing down...
Ease up
Of course, if you just can't wait to quit working, you can still increase your retirement savings by smartly managing the amount of money you withdraw monthly. Think back to Savings 101 and cut out all your unnecessary expenses. For one example, a drop from premium cable services to basic can mean $15 per month. Multiply that over 20 years of retirement and that's easily more than $4000. You'd be happy to have that added to your retirement savings, wouldn't you? How many other ways can you save $10 or $20 a month in other parts of your budget? Suddenly, you're drawing down more slowly and the interest you are still earning dwindles just a little bit less with time.
Never forget that people are living longer and healthier than they have in the past. Experts now advise that a 4%/year drawdown rate is smartest. Even lower is even smarter. Of course, in Canada, we don't worry about that as much as our US counterparts, thanks to CPP and OAS. Still, there is no reason to throw away money. And you'll find that just a little bit truer when your money is just a little more finite, as it is when you are drawing down and no longer contributing to your savings.
Learn more
Do you know how much your workplace pension is worth? Your pension may increase to the point where it is worth more than your home, by the time you are 55. Most people have a defined contribution plan, and have banked on the stock market as their place to invest. In this case, you may be in trouble, albeit that this trouble is most likely only temporary. If you have the option of choosing where to invest, now is a good time to educate yourself as much as possible about which stocks are likely to bounce back the highest.
A small minority of Canadians partake in what is called a defined benefit pension plan. These guarantee retirees a set monthly payout based on what they earned late in their careers. These are great for employees but are a big risk for employers, especially in times like now. Hence their increasing rarity.
Save
TFSA stands for Tax Free Savings Account, introduced by the Canadian government just this year. The TFSA is similar to an RRSP in that it allows retirement savings to grow tax-free. In other ways, a TFSA is opposite an RRSP: You get no tax rebate when you pay in as you would with an RRSP; however, you do not have to pay income tax on it when you take money out.
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