People retire for different reasons. A skier might retire because he’s going downhill, or an elderly chef could retire because his sage is showing. 😀 But no matter what the circumstances may be we all have to be financially repaired for retirement. This means preparing an adequately sized retirement fund.
But what is retirement savings? Some believe it’s what you have in an 401(k), IRA, or RRSP. But due to the fungible nature of money almost anything can be a part of retirement savings. There’s no need for separation. For me, the definition of a retirement fund is all the financial assets I have at the time when I decide to quit working.
This simplifies life greatly. I don’t have to choose between contributing money to my TFSA or put it towards my RRSP because both vehicles will eventually become part of my retirement fund. The only implication would be for taxes. So retirement savings is more than a 401(k) or a pension. It includes Traditional IRAs, Roth IRAs, SEPs, savings accounts, mutual funds, stocks, and annuities. This gives us a more complete picture of what we have instead of just what’s in our registered retirement savings plan. 🙂
The financial world is constantly changing and retirement is part of it. A few decades ago the retirement plan for most people was based on 3 supporting legs; work pension, personal savings, and government pension such as social security.
Fast forward to 2015 and the grim reality for most workers now is we can’t count on generous work pensions anymore. A defined benefit pension plan is as rare as a Canadian who doesn’t watch hockey. With only 2 legs to stand on the retirement stool will become very unstable. The job participation rate is at decade lows. Many jobs are either going overseas or being replaced by automation. Who knows what kind of new retirement challenges our children’s generation of workers will face?
As Wayne Gretzky once said we have to “skate to where the puck is going to be, not where it has been.” But it’s difficult to predict future pension income and social security benefits. Thankfully there is something we can do to prepare in advance, regardless of what the future brings. All we need to do is acquire a diversified portfolio of valuable assets. This can be done by growing our income streams. But not all assets have to produce cash. My farms are losing money every year, haha. But their value is growing faster than a weed. If I sell my farms when I retire and invest the proceeds I can make enough passive income to satisfy my lifestyle. Any employer or government pension would be a nice bonus but is not necessary.
The old 3 legged retirement model doesn’t work because it relies too heavily on the 2 legs which are out of our control. So let’s think outside the box and imagine that our stool can have an unlimited number of legs. 🙂 For example I have 3 legs at the moment providing me with stable income; dividends, interest, and rent. But maybe 5 years from now I’ll have a couple more legs. I can’t say for sure though because I don’t have 2020 vision. 😀 But the more legs beneath my stool the stronger my retirement plan will be. 😉
By mentally removing the leg count limit and holding ourselves more responsible for our finances instead of relying on others, we can start to address the relevant retirement questions that are important to us and look for new opportunities that fits with our goals.
Random Useless Fact
People on Facebook in a nutshell.