5 Reasons Why You Need to Start Saving For Retirement Today
Having a comfortable retirement is more than just travelling around the world and playing golf. In order to be able to enjoy the activities you want to do, you better start saving. Here are five reasons why.
- You probably don’t have a pension plan
If you work in the public sector, then you’re likely to have what’s called a defined benefit pension where someone makes the investment decisions and pays you a certain amount every month.
If you’re in the private sector, you probably have what’s called a defined contribution pension where you choose your own investments (such as bond and stock mutual funds) and your employer gives you a certain amount to invest.
But odds are you don’t have a pension at all. According to the most recent figures available from Statistics Canada, just 37.9% of us belonged to a pension plan in 2013.
- Government benefits aren’t enough
After paying into the Canada Pension Plan (CPP) for decades, what you’ll qualify for won’t be very much for middle-class Canadians.
The average monthly amount for new beneficiaries is $618.59 in 2015. And the maximum monthly payment amount for old age security (OAS) is currently $564.87. You’ll need to have lived in Canada for at least 40 years after you turn 18 to get the maximum amount.
If you qualify for the maximum amount for OAS and get the average CPP amount, that works out to $1,183.46 a month or $14,201.52 a year. That’s not a lot to live on.
Both are considered income, so you’ll have to pay tax on what you receive.
- Retirement isn’t cheap
A 2015 BMO survey finds retirees spend an average of $2,400 a month during retirement. That’s nearly $30,000 a year.
Housing is the single largest expense, averaging $668 a month or $8,016 a year. Living expenses (bills, clothing, and transportation) are the second-largest expense at $581 a month.
Other expenses include, on average, food ($442), travel ($282), entertainment ($167), and medical expenses ($151).
- Health care isn’t always free
While you don’t have to pay to see your family physician (except by paying income tax), you’ll need to cover some medical expenses if your employer doesn’t offer post-retirement benefits.
Many believe the government will pay for their health benefits when they retire. A 2014 Sun Life study finds 44% of Canadians believe they won’t have to pay for prescription drugs, 50% believe the same about eye care, and 79% think they won’t need to pay for nursing home care. Unfortunately, they’re wrong, so start saving now; health care costs can pile up fast.
- You’re not going to win the lottery
Some Canadians think there’s an alternative to saving money for retirement and have an alternate plan in mind.
A 2014 BMO survey finds 34% believe they’ll be able to win the lottery to help fund their retirement. Sadly, the odds are against them.
The odds of winning the Lotto Max jackpot are almost one in 29 million. If those odds are too high, you have a better chance playing Lotto 6/49. The odds of winning that jackpot are nearly one in 14 million.
While retirement may be 10, 20, or 30 years away, saving for the future will make your life a lot more secure when you’re older.
Flickr: Wojciech Kulicki