Over the past year, we’ve traded movie theatres for movie nights on the couch, after-work drinks for virtual happy hour and gym sessions for home workouts. Home has been the place to be as the world adjusts to a new, post-COVID normal, which may have slowed down your social life but increased the savings in your bank account. On average, Canadian households saved around five times their disposable income in 2020 than they did in 2019.
Working from home has brought more savings for some, cutting down on costs like transportation and work attire (as anyone who has ever taken a virtual business call wearing sweatpants can attest to).
If you’re finding you have a little more than usual left over at the end of the month, it could be a good time to start thinking about your retirement—not by living off those extra funds (unless you’ve somehow secured a windfall throughout the pandemic) but by investing them into a retirement savings plan.
Studies show that more than one-third of Canadians aren’t saving for retirement, and one-third of that number is made up of boomers and seniors. Furthermore, seven out of 10 Canadians feel they won’t have enough money to retire with even if they do save up.
The earlier you start retirement planning the greater the chance for your money to grow, but starting where you’re at is better than not starting at all. Every bit adds up.
Let’s say you’d typically spend $100 a month buying lunch or coffee during your work breaks. Now let’s take that money and put it into an investment that will earn you compound interest.
Compound interest is, put simply, the interest you earn from your interest. If you invest $100 a month for 40 years, with a 6% annual rate of return compounded monthly, your lunch fund has become an almost $200,000 retirement fund. You can estimate what you’ll save using an online retirement savings calculator, by plugging in what you can afford with going interest rates.
But I have student loans, you might think. Or, I’m saving for a house. You will more than likely have expenses that come up over the years, so this is the perfect time to evaluate where you can save a few extra dollars every month. Even that seemingly small amount, redirected from your day-to-day expenses into an investment, can make a big difference in your retirement income.
You could also invest a larger chunk if you have it available, perhaps from last year’s trip that you didn’t end up taking. It’ll boost your compound interest, giving you an opportunity to travel in your retirement.
At the very least, putting what you would have spent elsewhere into a retirement fund is a wise choice no matter what stage of life you’re in. If the pandemic has taught us anything, it’s that we don’t know what the future will hold—but you can’t go wrong planning for one that is financially comfortable.
Reach out to a financial advisor to discuss what you can afford to save and how to stretch those funds as best you can into your retirement.