The Road Trip Of A Lifetime
Imagine yourself planning the trip of a lifetime...you’ve mapped out your route, punched in your destination on your GPS , coasting along the highway enjoying the beautiful scenery and just taking it all in. Feels great, doesn’t it?
The road trip can be just as fun as reaching your final destination, especially if you know where you’re going, which roads to take, which ones to avoid as there are construction delays, the approximate travel time it will take to get there and be reassured and confidently say that you’re on the right track.
Really, how many of us have spent hours planning a road trip such as this and yet have not given the same attention to an eventuality known as RETIREMENT? One might say, “but that’s still a long way off” or “I’m too busy taking care of what’s on hand."
SOME INTERESTING STATS...
- Gone are the days when people were employed by the same company for 35 years and then retired with a comfortable pension.
- Current retirement age is 65 but the government has plans of raising the eligibility for Old Age Security to 67 by year 2023.
- $1,038 is the maximum amount CPP paid out in 2014 but the average amount collected is $600. In order for someone to collect the full benefit, one should have worked 40 years and earning an annual income of at least $40,000.
- $570/month or $6840/year is the Old Age Security Pension that Canadians receive at age 65*$1170/month or $14,040/year is how much every average Canadian can expect at age 65; $28,040 per year for a married couple.
- Retired couples spend an average of $54,700 annually, which means that they will need savings of $1.3 million to generate the sum in retirement.
- On average, retirement planning in Canada begins at the age of 40, which gives people 25 years to plan.
WHAT DO HAPPY RETIREES DO?
THEY DETERMINE WHAT THEY WANT AND NEED THEIR RETIREMENT MONEY FOR...figure out what they want and how the money will fuel the life they want to live:
- CORE PURSUITS: at least 3 of them, e.g. Hobbies, Volunteering, Sports or Exercise
- TRAVEL: 2.4 trips or more per year
- SOCIALIZE: connecting with others; be part of a community
FIGURE OUT HOW MUCH MONEY THEY NEED TO SAVE BEFORE THEY RETIRE...
- Divide income into TSL: Taxes (30%). Savings (20%), Life ($50%) in their 20’s or 30’s
- 4 Percent Rule: Deduct 4% from their portfolios every year and not run out of money for at least 30 years
- The 1,000-Bucks-a-Month Rule : simple rule of thumb - for every $240,000 you save you can expect to have about $1,000/month at your disposal.
PAY OFF THEIR MORTGAGE IN AS LITTLE AS FIVE YEARS...
- The One-Third Rule: If you can pay off your mortgage using no more than one third of your non-retirement savings, consider writing a cheque today
- Shorten Mortgage Repayment: Accelerate by making lump anniversary payments, doubling up or making bi-weekly payments
- Do the “big’ stuff before retiring: renovations on an outdated kitchen or bathroom, replacing the leaky roof, high efficiency furnace, etc.
THEY DEVELOP AN INCOME STREAM FROM THREE OR FOUR SOURCES, NOT JUST ONE...
- 85% of happy retirees have more than one source of income
- Other potential sources of income: Part time work, investment income, rental income in addition to your Old Age Pension, CPP or Company Pension.
THEY BECOME AN INCOME INVESTOR...
- Generate cash flow from liquid investments: Dividends from stocks, Interest from various types of bonds, Distributions that come from other type of investments
- Cash flow from investments makes up the personal portfolio yield
- Classify investments into four buckets: Cash bucket, Income bucket, Growth bucket, Alternative Income bucket