According to Yahoo, many 20-somethings are starting to think and worry about retirement, among worrying about finding a life partner, saving enough money for a home, and finding a good career.
With the recent sustained economic downturn, many 20-somethings are witnessing their baby boomer parents not being able to retire, and continuing to work past the age of 65.
There are many reasons that you should likely not only start thinking about retirement, but actually do something about it (e.g. like start saving for retirement). Here are six for you to consider.
We are living longer
According to CBC, Canadians’ life expectancy continues to increase, to an average of 80.7 years of age between the years 2005 and 2007. Many people recommend that you have enough savings to last you until the ripe old age of 100, just in case that happens. Most people don’t live until 100 years of age of course, but it is prudent to use this number as a gauge on how much you need to save for retirement.
It is becoming more and more difficult to save
With temptations surrounding us like the new iPhone 5, newest iPad, 3D television, new cars with all the functions you could ever need, and exotic travels, the concept of delayed gratification has unfortunately become foreign to many. In addition to succumbing to instant gratification and “Keeping up with the Jones’” the cost of living is higher especially for tuition and shelter, gas, and more people have higher amounts of household and consumer debt than previous generations did. Although savings rates have increased since the recession, they are still not comparable to savings rate of previous generations. If we start off with terrible savings habits now when we’re young, what will happen when the real expenses start kicking in? (For example, mortgage, children, day care?)
You don’t know what might happen during your career
Another reason why you should start saving for retirement now is that truly, you don’t know what might happen during your working career. In 2006, the prevalence of disability was 14.3% (source: Statistics Canada). Unfortunately lower mortality rates comes with baggage of more chronic disease or prolonged life threatening illnesses- for example, diabetes, heart disease, cancer, and arthritis. These debilitating illnesses can unfortunately knock out your ability to produce income that you are previously accustomed to producing.
The Creation of TFSA makes it easier to spend your savings
With the creation of the Tax Free Savings Account, it is much easier to spend your savings than when the only option for registered retirement savings was the Registered Retirement Savings Plan (RRSP). The Tax Free Savings Account became a retirement savings option in 2009 (though many were using it as a savings account for big ticket items initially). Although the TFSA has been possibly the “greatest invention since sliced bread”, the Tax Free Savings Account has its disadvantages because it allows you to withdraw your funds tax-free without penalty with no issues. Especially when many young people are socking away their hard earned savings in the TFSA rather than the RRSP, this can create an issue of people accessing their retirement savings in the TFSA a little too easily.
Time is on your side- take advantage of it
When you start thinking about retirement now, instead of in your 40’s or 50’s, time is on your side. Compound interest and tax sheltered growth in a registered retirement savings account can really add up. Time and time again, it is proven that investing less (but consistently) when you are younger leads to more retirement savings than investing later (but with more money) when you are older.
“Retirement” has different meaning now
These days, retirement has a different contextual meaning to different people. For some, it can mean financial independence, where you can spend time with your children and spend time with your aging parents without having to feel pulled in all directions with formal work obligations. For some, retirement is important to not feel placed forcibly into the “sandwich generation” (feeling the caregiver obligations of caring for both your children and your aging parents).
As you can see, there are a myriad of reasons why you should not only begin to think about retirement, but actually start to do something about it. It doesn’t have to be a large amount. $100 a month towards your retirement savings goes a long way when you are young and have time on your side. Start investing in yourself now, not later.
Bargainmoosers, do you think it is harder now to save for retirement than it was for previous generations?