February 22, 2017, 9:41 am

Why Saving For Retirement Is The Most Sensible Choice

by: The Financial Blogger    Category: Personal Finance,RRSP
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Saving for your retirement presents both a mental and financial struggle. It is notoriously difficult to start saving and we easily find ourselves making excuses. In fact, you may find that you are trapped in a self-fulfilling belief: “I believe it’s true, therefore is must be true”. Your first and most difficult hurdle to overcome is confronting your mental barrier to saving for retirement.

Understanding why saving for retirement is important will help you take the first step to making the future a priority. You may not be able to start saving immediately, but the steps you take now to mentally prepare yourself will only benefit you in the future when it becomes easier to save.

 

Don’t get caught up living in the moment

Living for today may appeal to the romantics, but the reality is that they tend to rely on handouts from friends, family and/or the government. It is useful to visualize asking your partner, parents or the bank for money. How do you feel? Dread? Fear? Living in the moment means having to feel that way every month just to keep afloat.

That doesn’t mean you should just abandon you current needs and desires. Life is all about balance so try and weigh your future and present needs against each other. You do, after all, have to look after yourself.

 

Having enough money to save

Sometimes you may not have the money to allocate to retirement savings, but many people aren’t budgeting at all. Reviewing your monthly expenditure and setting up a budget often reveals wasteful spending. You may find that you do have some extra cash that could be used more wisely. You may also find that you still can’t start saving. Don’t despair – your budget will help you see the reality of your financial situation and help you plan towards starting your retirement savings. In fact, you can start for just $50/month. That’s the cost of a pair of shoes, a dinner or that satellite TV subscription.

 

Taking care of family members

It’s easy and essential to prioritize taking care of your family now, but thinking about the future is just as important. If you don’t take care of yourself then who will take care of them? Many find themselves stuck between their children and parent’s needs. For those of us stuck in the middle, considering and planning for our own futures will help us to break free from the cycle – to avoid depending on our children when it comes our turn to retire.

 

What about company schemes?

Maybe you don’t trust company schemes and you don’t have to. There are currently several financial products available, which means you don’t have to rely on your employer to manage your retirement savings plan. You can manage your own savings plan with unit trust-linked retirement annuities. You are able to choose the unit trusts that align with your goals, you can start and stop as your financial situation changes.

Being part of a group retirement annuity (which employers typically take out on behalf of their staff) doesn’t mean your employer owns it. They only facilitate the payments, while you are the ultimate owner of your individual annuity and you are able to continue your plan if you resign.

 

Investment managers and your retirement savings

Your retirement savings do not form part of your investment manager’s assets and are held in a trust, remaining safe even if your manager goes out of business. A board of trustees also oversees retirement funds. The trustees’ duties include ensuring that the retirement fund acts in the best interest of its members.

 

But how much work is it?

Starting a retirement annuity is similar to opening a bank account. In fact, you can open your own annuity in just a few steps and easily manage your account online.

 

Finding a place to start

All of this may seem daunting, but like most things in life its only until you get into it. If you are unsure then consult an independent financial advisor to help you formulate a plan that works for you.

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Comments

Re: “Sometimes you may not have the money to allocate to retirement savings, but many people aren’t budgeting at all. Reviewing your monthly expenditure and setting up a budget often reveals wasteful spending.” This is for sure true. But while a review of expenses and creating a budget is likely ideal, it seems that very few people are ever able to actually take this step. So my sense is that encouraging people to go the “pay yourself first” route may be more fruitful. Start small, say $50 a month, and then slowly increase the monthly payments to self (to savings or investment account, or robo-advisor etc) as you are able.