Three Reasons to NOT Save for Retirement

Most people are vastly under saving, but no matter where you are at with your retirement investments, it never really will hurt to save more. Life is spontaneous and will sometimes throw you in different directions, so there will likely be times when it is more important to allocate your money to other important costs rather than saving for your retirement. Here is a list of three reasons that you may NOT want to save for retirement at the time:

Silver CascadeCredit Card Debt

If you are in a significant amount of credit card debt it is probably a good idea to put a hold on your retirement investments. High interest rates on your credit card debt puts a drain on your finances and unless your investments are making more in interest than you are paying on your debts you are effectively losing money. It’s important to pay off, or at least minimize your credit card debt as a priority over retirement savings.

Have an Emergency Fund

Life can always go differently than you expect it to. By having an emergency fund you will be able to protect yourself financially if you suddenly lose your job or encounter any unexpected medical costs. It’s a good idea to have at least 6 months of living expenses saved up. Once your emergency fund is stocked you should then allocate those funds to your retirement savings.

Student Loans

If you are young, you likely have significant student loans. While you might think that it makes the most sense to direct some money to retirement investments and some to your loans. But if the interest rates on your loans are higher than the interest that you accumulate on your retirement investment, you are losing money. It’s wiser to pay off your debt as quickly as possible and then invest in your retirement.

An exception to this, however, is a low interest student loan where your interest rates are less than the interest that you make on your retirement investments. If this is the case it’s smart to allocate funds to both.

Retirement investments are important and should always be part of a healthy financial plan, but there will be times in your life where it makes more sense to prioritize other expenses over your retirement plan. If diverting money from your retirement investments can help you with current financial burdens, don’t be afraid to deviate from the plan. Finding a balance is important when allocating money to your expenses and to your savings.


4 Ways to Fund Your New Business

There are plenty of ways to get on the path to early retirement, but by far one of the best ones is to start your own business.  If you have the right idea that fills a need, you can have the pleasure of doing what you love while securing your financial future.

PF-laptop-1_1392700aOften the stumbling block is finding the funding for your business.  If you have a great idea but don’t have the money, here are some tips:

Go slowly.  No one says you have to quit your day job and jump right into the new business.  Why not start slowly, on the side, and make sure the business really can be profitable?  Once you’re sure that it is a worthwhile idea and you’re able to make money from it, then take the leap to pursuing it full-time.

This option also gives you time to save your money and fund your business on an as needed basis.  Of course, if your business idea takes off, you may need a quick infusion of cash.  Then, try one of the following options:

Take out a bank loan.  If you just need a modest amount of money to fund your business, try to find out about unsecured loans.  An unsecured loan won’t require collateral, and you usually have a limited time to pay it back.  This type of loan may give your business a boost without allowing you to go too far in debt.  You can begin the search to  find the best bank loan for you by searching the Internet.

Borrow from friends or family.  This arrangement can be risky, so only use it as a last resort.  Your friends and family may be able to loan you money and may be completely supportive of your business. . .or, they could be controlling and domineering and try to control you and your business.  Only you know which situation applies, but if it is the latter, proceed with caution.

Take out a peer to peer lending loan.  Peer to peer lending is becoming more and more popular.  You can state your reason for wanting a loan and wait for others to fund your idea.  The potential problem here is that the interest rate may be higher than what you would pay if you took out a bank loan.

Starting and running your own business can be the key to a successful early retirement.  If you need some financial assistance in the beginning, there are plenty of options available.

How Much Should I Save For Retirement?

You don’t need millions of dollars to retire early, but what you do need is a plan and a good portion of money saved to continue living the same lifestyle that you are used to, and also to bridge the gap between when you choose to retire and the age at which you can claim retirement benefits from the government.

RetirementLaneYou can estimate the amount that you need to save for your retirement by calculating your actual disposable income. To do that, start with your nominal income – your complete before tax income – salary and otherwise. From here deduct what you pay in taxes and mortgage if you are making payments. Subtract your  retirement contributions, your savings for your kids’ education, and any job related expenses. This will leave you with your real disposable income – this is the amount of money you should have as a target income for your retirement.

At 65, government benefits will replace some of this disposable income, but if you want to retire before 65 then you will have to rely on your savings for income between when you retire and 65 years of age.


Thinking About Downsizing?

Some thing that many retirees consider is downsizing from their current home, which they likely have a lot of equity in, to a smaller, less expensive, home, town home or condominium. But is this a good idea? Is it wise to downsize?

Realestate retirement plan

Many people consider selling their large family homes, which they have a lot of equity in as part of their retirement plans. When you are ready to downsize it’s important to think about where you will be moving to and which type of home to want to buy for retirement. Many retirees choose to move into condos. As a retired person living in a condo has many advantages that allow them to be worry-free such as no lawn care, snow removal, the availability of a fitness center and pool in some cases and also having the ability to travel at a moments notice since you have less responsibilities centered around your home.

After a decade of record breaking house prices in the greater Toronto area this is an appealing direction that many are moving towards there are endless possibilities. You could even choose to have a cabin near a lake or ocean in a more rural location, no more commute, less maintenance and beautiful quiet surroundings.

One problem with downsizing however is that it may it always work out the way that you would think that it would. In many cases home owners walk away with less money that they had anticipated. For example if you are downsizing from a $400K home to a $300K home there will be little left after real estate and legal fees.

This doesn’t mean that downsizing can’t work for you, if you do it right you can walk away with a nice nest egg that will allow you to do the things that you dreamed of such as traveling.

Be Honest About It

Why are you planning to sell your large family home? Financial reasons? Practical reasons? Have your kids moved away? Is your house just too big? Do you want to move closer to your grandchildren? Do you enjoy travel and it is unnecessary? – these are all good reasons to consider downsizing.

Assess Your Needs

How will you live your daily life? Should you consider a bungalow? Is the convienience of a condo appealing to your needs? Take a look at the activities that you currently participate in and those that you wish to participate in and go from there. Taking a look at what you need will help you determine what you do.

Location, location, location

Decide where it is that you actually want to live. What would you like your retirement to look like? Do you want to be in a rural or urban area? Do you want to be closer to your family? Do you want to downsize to a smaller home or condominium?

Smaller does not always equal cheaper

Depending on where you are moving to you may find that monthly expenses are higher than you currently pay. These trade offs can be difficult to quantify, for example if you are moving into an urban condo with many amenities you might find the condo fees can be very high.

Price it Out

If you are considering downsizing make sure that you have realistic expectations. The truth is that most people will walk away with less than they anticipated.

For example: Let’s say you are moving from a $600,000 home to a $400,000 condo. You would think you’d be left with a whopping $200,000 for your retirement. Then you factor in real estate commissions of $30,000, $2,500 in legal fees, $3,000 in land transfer tax, moving fees of $2,500 and outstanding property taxes of roughly $1,500.

Now subtract any outstanding mortgage you have on your property and factor in any new furniture you may need for your now smaller environment. You may find that your downsizing has left you with a modest $50,000-$80,000.

To get a better understanding of what you can expect real estate agents can be very helpful.

Make a Plan

Financial advisers are excellent people to consult when you are putting together a plan for downsizing your home. They will help you draw up a financial plan that will outline many potential scenarios that can help you meet your retirement goals.