Don’t Wreck Your Retirement

There have been countless articles and other information written on how to help plan for your retirement yet a large number of Canadians are nowhere close to where they should be.  Why are so many people messing up?  Here’s a list of the top 5 ways to wreck your retirement plans:

1)       Leaving “Employer Matched” funds on the table – For those of you with employers that offer a RRSP contribution matching program, you absolutely must take advantage of this.  When the employer offers a 1 to 1 match, you’re getting an instant 100% return on your investment!  There is no better way to boost your nest egg than by ensuring that you contribute the maximum allowed in this matching program.

2)       Continuously switching in and out of the market – The stock market has earned an average of almost 10% per year in the long run when you look back at the past performance.  So why don’t most investors earn an average of this (or better) during their investment career?  Most people let the emotional side of investing get the better of them and regularly jump in and out of the market instead of simply staying put.  Also, many people often get dreams of the “quick payday” of some hot investment option and move into it only to lose more money.  Get your investments into a properly structured portfolio and stop messing with them!

3)       Relying too heavily on the equity in your home – A house is a substantial asset and it should be factored into any retirement plan.  However, it should not be your entire retirement plan.  If you have to draw heavily on the equity, you could find yourself maxed out far too early in your retirement years.  Many people think that they can downsize in retirement and use the money gained to live off of.  The reality is that downsizing often won’t lead to nearly as much extra income as you might think.  Selling costs, upgrades, taxes and even new strata fees may put you in a very similar position to the one you were in before.

4)       Staying in debt for too long- It’s imperative to enter your retirement debt free.  Ideally, you should be debt free years before so that you are able to maximize the contributions to your retirement funds.  Starting early in your career, work out a plan to fund your investments and pay down your debt simultaneously to ensure your debt load won’t be hanging over you as your retirement nears.

5)       “Borrowing” from your retirement savings – Unless absolutely necessary, you should try to never borrow from your retirement accounts.  Many people do this and have great intentions of paying the money back into the account in the near future.  Unfortunately life somehow gets in the way and this repayment often doesn’t happen.  When setting up your investment plan, allocate one piece to your short or medium term savings that can be used for a house down payment, school or other unexpected costs.  The second portion should go into your RRSP or other retirement account and in your mind, should be “locked in” until you reach retirement.

The above list is by no means comprehensive but outlines the most common ways that people are hampering their own retirement efforts.  Everyone’s personal situation is unique and it’s never too soon to sit down with a Certified Financial Planner to prepare the framework for your own retirement plan.