10 Ways to Save for Retirement

In the aftermath of the Global Financial Crisis many people are wondering how they are going to be able to retire on their now depleted portfolios. Some are now planning to work longer, while others are looking for ways to avoid the same situation. Therefore, following are 10 pieces of advice and retirement savings strategies to help you feel more secure in planning for your golden years, and ways to ensure they truly are solid gold and not just gold-plated.

Why You Need to Think About Your Retirement Now

Financial experts agree that you will need around 75 per cent of your current income to maintain your standard of living after you retire. This is a general figure and of course depends on whether your mortgage is paid off, if you have other debts, and how you plan to spend your retirement. The 10 tips below address these issues.

It is also important to know that 50 per cent of working Americans who are actively saving for their retirement have less than $25,000 saved, and 70 per cent who are not saving for retirement have less than $10,000 in a savings account. This is why you need to start thinking about your retirement savings plan now, because it is a good chance to get your finances in order and start working towards some truly meaningful savings goals.

1. Curb your spending and plan your budget

Making a clear budget will help you with the rest of these tips and will help you clarify the standard of living you have now, what you can go without and what you’d really like to be able to afford. You’ll also be able to see how much money you are directing to your bad debts such as credit cards, and whether there is any extra spending room to pay down your mortgage faster.

When starting any savings plan it is important to first remove any bad debt like credit cards or personal loans. Any interest you earn in a savings account will be cancelled out by the interest you are paying on your debt, so budget to pay more than the minimum monthly repayment to wipe out that debt as soon as possible.

Once you have your debt under control, get your spending under control too. This means analyzing all of the luxuries in your budget and deciding which are necessary and which can be cut back on or removed all together. You don’t have to cut back on all your indulgences and you don’t have to cut back forever either – you can create a savings plan for six months or a year where you channel as much spare cash as you can into a high interest savings account to give it a boost, before sticking to a more flexible savings plan for the long term.

2. Know how much you need for your retirement

This is where your budget will help you again because you will be able to calculate which expenses will be constant when you retire and which will go up or down. Your fuel expenses may go down when you retire, for example, because you’re not driving to work every day, and so too may your food bills because you’ll be able to make more meals at home and avoid fast food and take away. Your mortgage repayments may be reduced, but hopefully paid off entirely when you retire so this part of the budget will be less too.

At the same time your entertainment portion of the budget will increase, and this is where you will decide how you want to spend your retirement. Is it important to have an overseas trip twice a year, or do you plan to purchase a boat and sail the local seas fishing? Will you move to a smaller house or will you keep your larger house to accommodate a growing extended family?

All of these factors influence how much money you need in your retirement savings account, and are important in helping you plan a way to achieve that retirement savings goal.

3. Know when you plan to retire

While we’d all love to retire tomorrow, that’s not always possible, so set a realistic retirement time frame. Would you like to retire at 60 or work to the traditional 65? Or perhaps you’d like to keep working part time until you’re 75 to keep active and maintain your working relationships.

These decisions will determine when you need your retirement savings to reach that magical number which means you have enough funds, and it also helps you determine how much money you will need. For example if you imagine you’ll live until 100, if you retire at 60 you need your retirement fund to last you 40 years, but if you retire at 75 you only need it to last 25 years. That can make a big difference in funds.

4. Save your windfalls

As for the practical retirement savings advice, from our first tip you know you need a high interest savings account to keep your savings separate from your everyday spending money, and to help you earn interest on your way to your retirement goal. So what else can you put in your retirement savings account?

Save every little windfall which befalls your finances and you will be surprised at how quickly your retirement savings can grow. Put your tax return straight into a savings account, along with any gifts of money for birthdays or Christmas, or inherited money. Plus, whenever you get a pay rise, have the additional money transferred directly to your savings account, and continue to have the same amount of money deposited into your everyday account each week. In saving the difference between your old and new wage, you are saving without even realizing it – it doesn’t get much easier than that.

5. Dedicated retirement savings accounts

Find out about specialized retirement savings accounts available to you. Some retirement savings products will allow your contributions to be taxed at a lower rate when you withdraw them for your retirement, and most retirement savings accounts will have a lower fee structure too.

There are differing retirement savings accounts available depending on your contributions and your age, but it is worth finding out about the incentives and assistance which is available to you. All you have to do is ask your bank, accountant or financial advisor, because someone who knows your financial situation will be able to advise you on the best retirement savings account for your needs.

6. Retirement fund

Depending on your job or career, you may also be eligible for employer contributions to a retirement fund. A retirement fund is an account held by a specialized investment institution that manages your contribution to keep it growing, while you keep working and your employer keeps contributing. Retirement funds are also tax protected, and even if you are able to access the money, it makes sense to leave it in the fund until you retire.

7. Salary sacrifice into a retirement fund

Choosing to negotiate a salary sacrifice with your employer can also help you save for your retirement as you can have a portion of your wage deposited directly into a retirement fund so you are saving for your future. Plus you will be taxed in a lower tax bracket because you have a reduced wage.

8. Make retirement fund contributions for your spouse

If your spouse is earning below a designated amount, in some cases you are able to make contributions to a retirement fund or a retirement savings account in their name. These contributions are also eligible for tax benefits, while accumulating retirement savings for both you and your partner.

9. Consult a financial advisor, now and into the future

Managing your finances can be a full time job, especially if you are looking for a way to aggressively grow your retirement savings or recover from a recent loss of retirement funds. The fees of a financial advisor are generally tax deductible, and having someone advise you on the savings and investment options which are best for your current situation, and which can help you achieve your dream retirement, is well worth the investment. Also be sure to seek a professional who can stay with you and continue to give advice as your life situation changes over the years.

10. Start as soon as possible

You may want to start saving for your retirement right now, but if you have credit card debt or are unprepared for a retirement savings plan then you are not going to effectively achieve those goals. Instead, work your way through these 10 tips before you start saving for your retirement to make sure you don’t waste any time when you do start saving.

At the same time it is important to start saving for your retirement as soon as possible, as there will be less ground to make up and more time to save the amount you’ve been dreaming of.

Fred Schebesta writes for Savings Account Finder, where he helps people to compare savings accounts and term deposits.

Ways to reduce debt by budgeting

As the world moves out of recession, it's never been more important to assess your finances and sort out any debt problems you may have.

Although the recession will have left a lot of us with debts, it is important to understand that there are ways out. This article aims to highlight ways in which you can reduce your debts by budgeting.

Budgeting is all about understanding and controlling your finances: your income and your expenditure. But how is it done?

Create a realistic budget

To create a realistic budget, you will need to work out your total income (everything you earn/receive each month) and your total expenditure (everything you spend on your 'priority' debts and day-to-day living expenses - so, your mortgage/rent, secured debts, food, petrol, utility bills, etc.).

Then you should subtract your total expenditure from your total income, which will leave you with your 'disposable income'. This is simply the money you have available for saving, spending on yourself, and servicing your 'non-priority' debts (store/credit cards, unsecured loans, etc.).

Keep track of your spending

Now you have your budget, you will be able to see how much money you have available to spend each month. It is important that when you do spend, you keep track of it - it all adds up.

If you fail to keep track of everything you've spent, your budget won't be accurate, and you might find you start running out of money before the end of the month.

By keeping track of your spending you can also see where you are wasting your money, which leads us onto the next point…

Cut back on your non-essential spending

Once you can successfully keep track of where all your money is going, you should be able to identify any areas where you are spending money you could be using to overpay your debts.

By cutting back on this non-essential spending, you can 'free up' money to put towards your debts, so you can clear them faster than you would if you just kept making the minimum payments.

Plan what you need to spend for the month

At the start of every month, sit down and plan out what you need to spend for the weeks ahead - for example, food, travel costs, bills, debt repayments - taking into account any unusual expenses (the kind you just don't run into every month).

Once you have compiled your list, you should add up how much each expense will cost you. Of course, you may not be able to predict how much your travel will cost you, or how much you'll spend on food, so if necessary you'll need to estimate costs like these.

Planning how much you need to spend each month means you will be in much better control of where your money is going. What's more, you will be able to spot early on if you won't have enough money to cover your expenses - and see if you can find a way around it.

Unfortunately, budgeting alone won't be enough for everyone - some people's problems are so serious that their income simply isn't enough to cover their expenses.

If that sounds like you, you should contact a professional debt adviser.

The right debt adviser will be able to assess your situation and let you know if a professional debt solution could be right for you. This will vary from country to country - in the UK, for example, people with unmanageable debt may be able to enter into debt management plans or IVAs (Individual Voluntary Arrangement).

This guest post was written by Melanie Taylor, personal finance expert at financial solutions provider Think Money.

Planning Your Financial Strategy Using Your Rear View Mirror

Let’s start with a metaphor. Your financial strategy is a bit like driving your car. You have a destination; let’s call it Retirement City. You plan your route to get from here to there. This is your savings and investment strategy. You know there will be traffic, bumps on the road, stop lights, highways and maybe even a crazy driver who will cut you off along the way. These are uncontrollable factors much like economic and financial events and life circumstances. Knowing your driving skill, you are confident you will arrive safely at Retirement City.

Now, can you imagine if you tried to make this journey by driving backwards only looking into your rear view mirror? It doesn’t take much imagination to know that you would not attempt to make this journey by only looking in your rear view mirror. Yet many investment decisions are based on recent short-term events. The assumption being that what happened recently will surely happen again. However that’s the past and you are looking into our rear view mirror with this strategy.

Over the past twelve months we have seen enough ups and downs in the markets to last a lifetime. Volatile markets often tempt investors into making financial mistakes. They sell their current “dogs”, perceived as poor investments because they went down, and switch into the next “hot” stock, mutual fund or other investment tip that has showed recent strong performance.

Using short-term trends to support decisions for a long-term investment strategy could be a mistake. No one knows what’s over the next hill or can predict the future. By making snap investment decisions based on recent short-term performance you could find yourself selling, only to determine later that you should have been doing exactly the opposite and buying.

As an investor you have certainly heard the disclaimer “past performance does not guarantee future results.” This becomes clear when we look at a Lipper study of the top quartile large cap US equity mutual funds from 1998 to 2002. The study followed the performance of these funds over the following four years. Only 19% stayed top quartile. Another 25% slipped to second quartile. While 32% of those top performing funds fell into third quartile and the last 24% fell all the way into fourth quartile ranking.

You can’t control the journey to Retirement City, just like you do not know how the economy or financial markets will behave. With proper coaching and discipline you can control your emotion and commit to a financial strategy that is crafted to meet your long-term needs and goals.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of FundEX Investments Inc. to discuss your particular circumstances or suggest a topic for future articles, at 613-798-2421 or e-mail rick@invested-interest.ca

Get Paid to Wait

The headlines continue to report bad news. Corporate bailouts, high unemployment figures and ballooning government deficits, not to mention swine flu, make the average Canadian wonder why they should invest in equities at all. But what are the alternatives? Interest rates are at historic lows. After taxes and inflation you are spinning your wheels and going backwards by saving in guaranteed investments.

Given the volatility and negative news we have witnessed over the past year, there are many who wonder if investing in equities is really worth it. Here’s a strategy that can prove to you that patience can really pay, with dividends.

Yes, equity prices did fall and hit bottom last March. However, the sky did not fall and we appear to be recovering nicely from the lows of last spring. Meanwhile, many mutual funds invest in businesses that have continued to pay dividends. Yes, some businesses have cut dividends while others have actually increased their dividend payout to shareholders.

But, let’s first explain what a dividend is and how we can use this information to our advantage. The cash flow or revenue of a company comes from the sale of goods and services. From this income the company pays expenses such as salaries, materials, rent and other operating expenses. The remainder is the amount that the company has to claim as income. The government takes a share in tax, and the leftover sum is either used by the company to re-invest in more modern equipment or buy supplies etc. The money that is left over after expenses, taxes and re-investment is what the company has to reward its shareholders by way of a dividend.

If you think about it, it’s very similar to the concept of cash flow management at a personal level. You earn income from employment. You pay your living expenses and taxes, and then you can either save or spend the remainder. The amount you save is your investment in your future. The amount you spend is your personal dividend to yourself. The problem is that over the past decade or so, people have been spending more than they could afford and not re-investing in their future.

Now let’s get back to our discussion on dividends. Equity prices have fallen on an abundance of good quality businesses with superior products and services that continue to pay dividends. These businesses are well managed and stand to benefit greatly as the economic recovery takes hold. Many dividend rates on these companies are currently in the 3-5% range, and in some cases higher. Have you looked at guaranteed investment rates lately? It’s not easy to find a guaranteed rate in the 3-5% range.

Our investment strategy is simple. Always keep your short-term savings in a safe and liquid investment. Have faith that there will be an economic recovery; there always has been. Only invest in equities with your long-term savings. This allows you to have patience and even invest more during market declines. Consult with a trusted advisor who can coach you through troubled times. And get paid to wait.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

Financial Advisor Scam

The financial services advisory profession was shaken by a scam announced early in July 2009. Although the facts are still being gathered by the authorities, it appears that a Montreal resident, posing as a financial advisor for many years, has run-off with approximately $50 million in client funds.

It has been reported that Bertram Earl Jones was not registered with any securities regulator, not affiliated with any securities dealer or insurance distributor and has no professional designation. Yet for years he befriended Montreal residents and convinced them to entrust their savings to him and his company. For some, it was their life savings. Now his personal and corporate bank accounts are empty and Jones is nowhere to be found.

The problem only came to light when his clients started to receive cheques that were not honoured by his bank and no one was answering his phones. His phone message indicated that his company was not in a position to return funds.

Since Jones was not licensed there was no authority looking over his shoulder. This could make it difficult for clients, as there is no regulatory protection to get their money back from industry sources such as the Canadian Investor Protection Fund.

Let’s hope that Jones is in jail by the time you read this, however there are some lessons here for consumers dealing with financial advisors. Do your homework before placing your trust, and hard earned cash, with any individual or corporation. For your protection you should be dealing with a licensed person. That person is often sponsored by a larger organization who oversees compliance and industry regulations. Better yet, the person should also be affiliated with professional organizations.

The regulator and licensing body in Ontario is the Ontario Securities Commission (OSC). Mutual fund distributors are also required to be members of the Mutual Fund Dealers Association (MFDA). These regulatory bodies enforce the regulations and code of professional conduct that are designed to protect the consumer from scoundrels like Jones.

Professional organizations include: the Institute of Advanced Financial Planners (IAFP) who is responsible for the R.F.P. designation. The Financial Planners Standards Council (FPSC) is responsible for the Certified Financial Planner (CFP) designation. The Chartered Life Underwriters Institute issue and monitor the Certified Life Underwriter (CLU) designation. These are just a few of the professional organizations with which financial planners can be affiliated. Credentials in a professional organization assure consumers that there is another layer of credibility. Each of these bodies has minimum education standards and requires annual certification.

Here are a few additional tips for your protection. Never issue investment cheques that are payable to the individual planner. All cheques should be written payable to a trust account and you should receive confirmation of your investment shortly after your cheque is cashed. It sounds like the Jones clients weren't getting anything except letters from Jones himself. The Jones crime will probably come down as a case of a rogue individual posing as a legitimate financial planner who was nothing more than a common criminal.

Do your own due diligence to ensure your advisor is legitimate and that there are safeguards in place for your protection. As it stands today, anyone can hang out a shingle and call themselves a financial planner. No licence is required until financial products are sold. And there is no requirement in Ontario to be a member of a professional organization.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

Spending Profile, New Feature Release: Monthly Statements

We released a new feature into Spending Profile today - you can now download monthly statements directly from the website. You can choose any month from any year without restriction. They are in html format with embedded images, so there is only one file to download. This means they can be viewed on any platform in any browser and do not require a plug-in.

Our next step is to re-instate the automatic emailing of monthly statements on the first of every month.

A big thank you to Charbel Choueiri, our lead architect, who worked very hard to release this feature for our members.

New version of Spending Profile released!

We are very pleased to announce that a new version of Spending Profile has been released!

Version 3.1 contains numerous new features that our members have been requesting for a long time, as well as improvements in speed. Thanks for being patient!

Visit the site at www.spendingprofile.com. Recreate your password instantly here if you have forgotten it. Or use the Live Demo if you don't have an account.

What's NEW with Spending Profile?

• Subcategories! Finally, you can divide your expenses into categories and subcategories. For example, you can create a category called Car, and inside it you can have Gas, Insurance, and Maintenance.
• A new Accounts field so you can specify which bank account or credit card you used for each transaction.
• Faster performance due to using Ajax. You won't have to wait so long for pages to load.
• Pie charts that show subcategories. Click a slice to drill into it and see the data at the next level.
• Export your data for use in other software programs, such as Excel or Microsoft Money.
• Smarter importing - the program can learn from your past history and automatically categorize your imported transactions, making it faster and easier to stay up-to-date.
• Many more improvements that you'll just have to log on to see!

To see the new version, visit www.spendingprofile.com. Please send us feedback at info@spendingprofile.com, or use the feedback form on the main page after logging in. Thank you!

Lisa Wall
Project Coordinator
Spending Profile