Part 3: What tools to use, how to start and a case study.

What Tools to Use:

Paper or software such as Excel are great to record your retirement lifestyle budget and do any calculations. Many financial institutions have on-line retirement calculators including the Government of Canada.

(http://www.servicecanada.gc.ca/eng/isp/common/cricinfo.shtml)

These are very handy to get an idea of the factors involved in the calculation and you can adjust the various inputs to see how the outcomes change.

How to Start:

Once you know how much you would like to invest each year, the easiest way to start is to set up an automatic savings plan through your bank or credit union. There are several benefits including dollar cost averaging, automatic transaction (debit to your account) and it’s habit forming without effort. Consider other resources you may have such as ‘found money’ (tax return, bonus or extra income) – you won’t miss it from your daily spending. It doesn’t matter if you can’t put aside the target amount yet, start somewhere.

Two savings vehicles:

• RRSP – Registered Retirement Savings Plan
• TFSA – Tax Free Savings Account

Retirement Savings – Part 4 will discuss RRSP’s and TFSA savings plans.

Case Study – A Comparison of Ellen and Chris:

Ellen is 24, started her first career job and has no RRSP savings. She’s seen several TV ads about RRSP’s and wonders whether they apply to her. Her monthly paycheck after deductions is $2,000. She decides to use her bank’s retirement calculator tool to learn what she should be saving for retirement. She assumes she’ll work for at least 35 years, live until she’s 95, receive a government pension (CPP & OAS – approximately $1,000 per month) and be mortgage free. She would like to have more income in retirement to enjoy life – perhaps $4,000 per month (before taxes). The calculator output for Ellen is savings of $8,600 per year which will grow to $1,331,000 in 35 years. She doesn’t feel that she can put aside anywhere close to $8,600/12 = $717 per month yet. That’s ok, if she can begin with $250 per month, it’s a good start. If she uses any raises or found money to increase her monthly automatic savings, she will reach her goal sooner rather than later.

Chris is 32 years old and has worked in construction for a number of years. He has a small RRSP of $3,500 that his banker encouraged him to open a couple years ago. He hasn’t put in any money since but he’s starting to wonder if he should. Some of his co-workers have been talking about RRSP’s because they are closer to retirement. The calculator output for Chris $11,400 per year which will grow to $1,033,000 in 28 years. All other factors are similar to Ellen (government pension income, $4,000 per month retirement income) but the amount he must save to reach the same goal is greater because he is starting later (less time for the savings to grow). Chris decides to get started and can put aside $600 per month. He’ll increase it in a year to $1,000 once his truck is paid off.