Most think retirement planning should start before 35 but 40% haven’t planned at all
My mom opened a savings account for me when I turned 13. Every week she would make sure I put money in it. I wonder why more moms are not doing that these days? Saving is a habit. Just like spending.
A report from BMO Retirement Institute to be released today says that although 90% believe retirement planning should begin before age 35, 40% of non-retirees concede they’ve done no retirement planning at all. The amusing title of the report is Retirement Planning: Can get back to you on that?
Strategic Counsel looked at behavioural finance research and found some psychological disconnects that prevent Canadians from properly saving. Many suffer from paralysis of choice and succumb to immediate gratification. That is, they procrastinate because they place less value on a future reward than they do to a benefit in the present: while 82% thought it was important to start early in saving for retirement, 81% who had saved nothing said they were more concerned about current needs.
The report also found that 36% of non-retirees felt overwhelmed by too much information, resulting in the ability to choose at all. This is especially so for lower income people. BMO Retirement Institute head Tina Di Vito says understanding these psychological barriers is the first step to overcoming them. 88% of those aged 35 to 44 are most likely to have debt and 25% worry about it; half are behind in planning and 44% are dissatisfied with how much they have saved to date. Of those with children under 18, 42% are less likely to view retirement savings as a priority and 62% are more inclined to put a bonus or raise towards reducing debt.
Many with low incomes apparently feel they just can’t “afford” to save. But for this: The Power of Compounding: Start saving early!
Naturally, BMO is pounding home the message that it’s never too soon to start saving and few would argue with that. The report shows a table illustrating that a 25-year old who saves $500 a month for 20 years (total $120,00) ends up with 33% more savings at age 65 than the procrastinating 45-year old who finally starts to save $1,000 a month for the next 20 years. Even though the late-starter puts in twice as much ($240,000), he winds up with just $407,378 [assuming a 5% annual return] compared to $540,448 for the saver who started in his 20s.
So what is your take on this? Why don’t you add your comments today?
Here is the BMO Report:
- Many Canadians are not planning or saving adequately for their retirement — or, at least, not if they seek to live a lifestyle in retirement that is comparable to their working years.
- In a survey commissioned by The Institute4, Canadians not yet retired were asked how satisfied they were with the amount they had saved for retirement.
- About half of the non-retirees in the sample reported that they expect to live a lifestyle in retirement that is less, or much less, comfortable than their current lifestyle.
- There would appear to be no lack of awareness among Canadians of the challenges they may face in retirement.
- The respondents were also aware of the steps they should be taking to prepare for retirement, and almost nine in ten reported that such planning should begin before age 35.
- Almost four in ten households reported that they spend more than they should — and among non-retirees with debt, more than one in five (21 per cent) reported they “worry a lot” about current debt levels.
- It seems safe to conclude that the next generation will be influenced by the behaviour of their parents, too.
- More than eight in ten survey respondents agreed that Canadians should begin retirement planning and saving as early as possible.
- Starting in one’s 20s is not too soon.
- As they enter the regular workforce and start getting a full-time pay cheque for the first time in their lives, young adults in their 20s will suddenly find themselves with more disposable income than they have ever known.
- For example, it is never too early for young adults to learn about Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) and to begin making regular contributions to them.
- At the start of one’s working life is also the time to investigate an employer’s pension offering and sign up for it.
- In addition, if the employer offers a share ownership plan or a profit-sharing plan, it would be wise to find out about them and take advantage of such savings vehicles.
- Parents play a role by teaching children basic money management skills, and helping them develop good budgeting and saving behaviours.
Source: Jonathan Chevreau, Financial Post (Read full article here.)
NB: – This blog is by Leo Lee AMP. He is a licensed independent mortgage broker in Victoria, British Columbia, Canada. Leo provides professional advice on real estate financing for residential, commercial and industrial properties. Leo works for you, not the lenders. He is also an approved mortgage agent for the Tax Deductible Mortgage Plan (TDMP. His blog and Web site are dedicated to providing the public useful and timely information on mortgages, interest rate, real estate, personal finance, money and the Canadian economy.
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