I read a few shocking statistics the other day. They’re becoming more and more common and less shocking, I must say, but still very disheartening for most folks:
64% of Canadians are finding it hard to find money to invest
77% are not even saving for retirement
80% feel that they are not on track to meet their retirement goals
Out of the 23% who are actually saving for retirement….
(Gosh I feel like an endangered species..)
66% are simply saving in a regular savings account
(Kill me now and end my pain!!)
50% put their money into mutual funds and high-interest savings accounts
TOP 2 REGRETS:
1. 40% wish they had started saving earlier
2. 23% wish they hadn’t spent so much money and saved more
THE AVERAGE PERSON HAS LESS THAN $100K SAVED FOR RETIREMENT JUST BEFORE THEY ACTUALLY RETIRE
I read this stat somewhere and stupidly forgot to save it (I should start EverNoting this stuff), but I found a few more articles:
“Many boomers in the survey felt they had come up short of what they expected to have saved by this stage in their life, with 45 per cent having saved less than $100,000.”
- CIBC Poll: 45% of Canadians have less than $100,000 saved before retirement
“A recent survey by the Employee Benefit Research Institute EBRI, found that 60% of workers born between 1946 and 1964 have less than $100,000 for retirement. In fact, 40% have saved less than $25,000.”
Not only that, Americans are starting to dip into their retirement savings accounts to cover their bills.
More on that later on in this post.
Let’s talk about my fellow Canadians first.
CANADIANS ARE 165% OF DISPOSABLE INCOME IN HOUSEHOLD DEBT
A record high.
“Households’ credit market debt, which includes mortgages, consumer credit and loans, rose by $14.7 billion in the quarter, about half the increase seen in the third, Statscan said.
Mortgage borrowing led the demand for credit in the fourth quarter, rising by $11 billion to a total of $1.1 trillion. In the previous quarter, mortgage borrowing increased by $19.1 billion.
Consumer credit debt stood at $477 billion at the end of 2012.”
What is WRONG with us?!
Household debt by the way, refers to: mortgage, loans and credit cards.
Canadians now owe 165% of their DISPOSABLE INCOME in debt.
Let that sink in.
165% of Disposable. Income. in Debt
That means after fixed expenses such as rent, car payments and debt repayments, AND AFTER variable expenses such as gas, groceries and eating out.
Disposable income to spend on trinkets.
Like let’s say… more credit card debt to buy houses we can’t afford, and vacations.
OUR CANADIAN HOUSING MARKET IS GOING DOWN
The flicker of optimism that sparked in Canada’s housing market when January sales outpaced December’s has died out, erased by a notable drop in February.
Canadian home buyers “come out of hibernation and start shopping March through July … cooling off once the kids need to be settled in back to school come September,” economists at Bank of Nova Scotia noted in a research note.
Everyone on the PF blogosphere is predicting a crash in Canada’s housing market.
(By everyone, I mean Joe, Nelson and myself as cynical Canadians of the bunch.)
Everyone in the media and in politics, is predicting a “soft landing” and “softening of prices”, and are wearing rose-coloured glasses, sucking on lollipops and skipping along gold-paved streets.
Softening of language more like, because you read articles by ScotiaBank talking about how the housing market is a “soft landing” not a crash.
OF COURSE it’s a “soft landing”, you don’t want to go into a tailspin of mortgage defaults.
As Nelson pointed out months ago in November, it looks like July 2013 is when most people are predicting the crash.
Makes sense, as data is released quarterly (Jan – Mar then Apr – Jun).
Chicken Little? Or basically a repeat of the U.S. housing crisis?
I’m thinking it’ll be a repeat of the U.S. housing crisis but not as bad as what happened in the U.S., because Canadians (as in bankers) are generally less money-grubbing and greedy as a culture.
Okay, Canadian bankers are more of the “cautious folk” stock, and didn’t REALLY enjoy lend out risky mortgages to people who had $0 down and no income to back up what they were borrowing.
Anyway, all this means is that we’ll know when and if the dust settles in July, who was right.
ALL YOU NEED IS $25 TO START INVESTING
Now… Canadians, listen up!
All you need is $25 to start investing. That’s the minimum purchase amount on the index funds I contribute to.
..and frankly if you already have RRSPs and TFSAs, you are already investing if you put your money in something other than a high-interest savings account (stocks, mutual funds, index funds…)
Sure if you want to buy stocks, you need about $1000 – $5000 to fund your account at Questrade (or risk paying a fee), but $25 is all you really need to begin.
Note: You can use my referral id o0soehds at Questrade if you decide to go that route; and you’ll get $50 in free trades, and I’ll get $70 for your kind referral.
IS IT FINDING MONEY TO INVEST, OR SIMPLY PUTTING SAVING FIRST?
I wonder if it’s a problem with finding the money to invest, or simply to SAVE.
The two are related, but the first step is just to save money.
If we think about it in terms of income, someone who makes $100,000 a year, should be able to set aside at least $10,000 a year in savings (10%), but our real savings rate is hovering more around 4.3%, so someone who makes $100,000 a year, only saves about $4300 of that income.
This is not including company pension plans, or CPP (Canadian Pension Plan, much like Social Security in the U.S.).
So at those savings rates of $4300 a year, it is no surprise that….
The average person just before retirement at the age of 60 only has about $100,000 saved.
Let’s take my parents for instance.
$0 savings whatsoever aside from the home that they own, but they’re saved by having a generous, solid company pension.
As of today, my parents could expect to get $25,000 a year when they retire from their company pension, plus CPP at around $500 a month (that’s the average rate of CPP).
Note: Of course, they’re working longer, so they’ll actually have more than that.
This will give them about $2500 a month, which is more than enough to cover their living expenses after taxes because their house is already 100% paid off, and they don’t have any outstanding consumer debts.
But their situation is a lucky one because of the company pension plan (a rarity these days).
Nowadays, we are responsible for our own retirement plans, actively saving in a Registered Retirement Savings Plan (RRSP) and doing it ourselves.
BUT WAIT, WHAT ABOUT CANADA’S SWEET GUARANTEED RETIREMENT PLANS?
*wipes tears from eyes*
Look, I wouldn’t necessarily trust in Canada’s “guaranteed retirement” plans.
I know to my American readers it sounds incredible to laugh in the face of government retirement plans, but frankly, as a country that also can’t seem to stay out of debt we are wasting money left and right.
For instance, as a country, we’re paying 105 useless people in the Canadian Senate about $132,300 a year to do jack squat, and you think with that single statistic, I’m going to trust our government to take care of me in 40 years?
Why don’t I just look for a rich, super old sugar daddy to take care of me financially and then leave me his entire estate, cutting all of his children out of it, while I’m out hunting for a unicorn?
$132,300 x 105 useless Senators = $13.89 million in immediate, annual savings.
As I understood it in elementary school at the tender age of 13, being in the Canadian Senate, is like a mini retirement before your actual retirement where you roll around in your millions of dollars, laughing at how you scammed Canadian taxpayers into paying you to do nothing.
You don’t do much.
You barely show up for work, and get paid more than double the average household income in Canada, and quadruple the average single-worker income in Canada.
Furthermore, I am not entirely sure I want to qualify for these Canadian guaranteed retirement plans.
You have to have practically NOTHING saved to qualify, and that’s verging on cat-food-eating territory for me.
I am hoping to NOT qualify because I saved so much money and I don’t have to struggle to live on $500 a month.
WE MAY NOT EVEN HAVE A CHOICE OF WHEN WE RETIRE!
Canadians are more likely to be retired unexpectedly:
85 per cent of pre-retired Boomers with financial assets of more than $100,000 or more believe they will have the choice of when they retire, only 62 per cent actually did have the choice of deciding when they retired.
In fact, only 20 per cent of retired Boomers knew one month or less before their actual retirement that they were going to retire and 42 per cent had less than six months’ notice.
Turns out, as a society we suck at planning for our retirement because we don’t think about it until it’s too late, let’s say in our 50s? Even in our 60s?
Now on to our friends across the border:
AMERICANS ARE DIPPING INTO THEIR SAVINGS TO LIVE
Even with what Americans are making today, it’s not enough to cover their bills.
In desperation, 25% of workers are dipping into their 401Ks to supplement their lifestyles:
One in four workers dip into retirement funds to pay their mortgages, credit card debt or other bills.
Those in their 40s have been the most likely culprits — one-third are turning to such accounts for relief.
The most common way Americans tap their retirement funds is through loans, which must be repaid with interest.
Those who withdraw money face hefty penalties. In most cases, they not only incur a 10 percent federal tax penalty but also pay income taxes.
In Canada we have a similar ability to withdraw from our RRSP (it’s similar to the 401K) without penalty for things like buying a home or paying for education, as long as we pay it back on a set schedule.
The problem is dipping into your 401K to cover your daily bills where the problem is really just a chronic lack of money, which goes untreated because people keep taking out more and more money instead of making more money to solve the issue.
STEPS ON HOW TO START FINDING MONEY TO SAVE
Whether it’s for investing, saving or just because you’re up against the wall and don’t have enough to cover your mortgage, these are the steps to start managing your money:
- Create a budget (even a preliminary one based on what you think you spend)
- Track your expenses against this preliminary budget (you’ve probably UNDERestimated)
- At the end of the month, see if you have any money leftover, or if you need to make more money
- Trim the fat from the budget covering just your basic needs & see if it helps
- If you still can’t make your budget balance and save money, you need to make more money
- Don’t buy too much house you can’t afford
That’s really the basic start to finding that money to save for your retirement.
It’s that, or you have 2 options:
- Work until you die (that is, NEVER retire)
- Be able to live off $500 a month (average Canadian Pension Plan pay out) for all your expenses
Neither one sounds very enticing, so I suggest you start saving.