Hey, I got a question for you.
How often do you think about the word “retirement”?
When we are planning for our retirement,
it’s crucial to be realistic about it.
Unfortunately,
many Canadians end up believing common myths
that lead to an unrealistic picture or
underestimating the amount they need.
And I don’t want you to be one of them.
So, in today’s video,
I want to give you my top 8 retirement myths
that I hear a lot from my clients.
And I’m also going to tell you what
you can do to avoid falling into these traps.
Hey welcome back,
this is Thomas,
Your trusted advisor for
retirement, wealth and insurance in Canada.
If you are interested in these topics,
make sure you hit the subscribe button below
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let’s get started.
The 8th common retirement myth that I hear a lot is:
I don’t need to save for retirement now.
You probably go about your daily life worried about
immediate things like paying down your credit card bill,
having enough money to put your kids through school,
or putting a down payment on a larger home.
And that is totally normal.
Those are real worries so why not wait
and put aside money for retirement
when you are older and can afford it?
Or when you are married.
Or when you pay off your mortgage?
There will always be excuses or
things to spend money on.
The truth is that a lot of people keep putting it off
and putting it off because it never seems the right time.
But if you have been following my channel for a while,
you know that putting a little bit aside now and
letting compound interest work in your favour is
better than putting a lot of money down later on.
Even if it’s an extra $20 or $50 a month.
If you start early,
you’ll be surprised at how that money will grow.
Let’s do a quick math here
Say Tom is 25 years old now and he wants to have
a million dollar by the time he is 65 and retired.
All he needs to do is to put away $300 per month
and invest with a decent rate of return.
But say he is 40 years old now,
he needs to save $1000 per month now to
catch up to the same amount of money.
So start saving now for retirement,
even if you don’t feel it’s enough.
Compound interest works over the long run and
will help you have enough money for retirement.
The next myth is: I’m counting on social security
to pay for what I need during retirement.
People think just because they pay into the
Canadian Pension Plan or the old age security,
they will have all the money they need
when they retire.
And while unfortunately
CPP and OAS are great to have,
you shouldn’t count on it
to meet all your future needs.
As the baby boomers are entering retirement,
they have put a real strain on
the Canadian Pensions Plan.
They are living longer and
so are taking more money from it.
Thankfully the government is aware of this and
have made some changes to the CPP to compensate.
For example, in 2016,
changes were made so ideally,
the goal would cover a third
of your present-day earnings.
But that means that you will still be
responsible for the other 67% of saving!
And not everyone contributes to CPP for 39 years.
Besides, from the tfsa,
you should still put money away into an RRSP account
which is exempt from tax
and will increase your savings now.
I know you must have billions of reasons
of disagreeing with my statement.
but again,
if you understand RRSP and use it right,
this will help supplement the money
you get from the government.
No. 6 we have:
I will get enough money from my parents
in their will when they die.
You might think the house they
live in will become yours one day.
Unfortunately,
this is generally faulty logic because you shouldn’t
count on the money your parents give you
when they pass away.
A lot of times,
I see parents are underestimating how much money
they will need for retirement and
so are using up their savings,
leaving less or none for kids.
You may look at your parents’ wealth now
and see they have built up a healthy nest egg,
but the truth is that they will likely use up
that money before they die leaving you
with less than you thought.
I witness so many elders need to refinance
their house to pay for house maintenance,
medical bills or taxes.
And in addition to that,
according to statistics Canada,
more than two million Canadians are in
the sandwich generation.
Where parents use up all their retirement saving,
and they need your assistance to retire.
while your kids need your support for their lifestyle.
You just never know.
So what I recommend is
You should have an open and honest conversation
with your parents.
Beside about their health,
talk about their finances too,
how much they have and what they plan to do with it.
It may be uncomfortable at first,
but you’ll be glad that you did.
The bottom-line is don’t get too confident
just because you think you’ll get
a lot of wealth from your parent.
In fact,
you might end up having a taxman or the banker
knocking at your door asking for money.
Alright, no.5:
I will be able to use the equity in my home
during retirement.
This is another popular one.
In Canada, especially,
we look at the equity that we’ve built up in
our homes and believe that as we downsize,
we will be able to use the extra money
to fund our retirement.
And while this can be true,
the housing market isn’t guaranteed to go up
at the same rates as it has been.
As in 2008,
while the housing market wasn’t hit as nearly
as bad as in the United States,
if timing is wrong,
you won’t get as much money as you expect
which can leave you with a real shortfall.
On average, there is a recession every 4 – 6 years,
some more severe than others.
If you need to take money out during a recession
then you might not have as much as you would like.
And as most financial planners will tell you,
it’s never wise to have a large percentage of your
retirement fund tied up in just one single asset.
It’s best to try and diversify your money.
This will safeguard you for anything unsuspected.
Also,
you don’t want to be forced to sell your dream home
just because you can’t afford to live there anymore.
As we get older,
we find we are less keen to make changes
and don’t want to move homes.
And while you could always apply for a reverse mortgage,
you could risk losing your home to
foreclosure if you’re not careful.
Number 4 in retirement myth is
I still plan on working during retirement
so income should not be a problem.
The modern work force is great for its flexibility,
and so a lot of people who are in jobs they love can
scale down their work to part time as they get older.
But circumstances can unfortunately quickly change.
Technology has forced industries to change
at an incredibly rate.
Your amazing company might be bought
out or you might not love the new bosses.
The management might try to enforce
new policies that you don’t agree with.
Working at your retirement age is
to keep you happy and active,
not to restrain you.
Or you might encounter some health problems that
prevent you from working when you’re older.
When we are in our 20s and 30s,
we think we are invincible and don’t worry that
we might not be able to work when we are older
And even if you don’t encounter health problems,
your spouse might want you to spend more time
together or to look after him or her.
Which this brings us to the next myth.
And that is that my spouse
will take care of my retirement.
While I hope this can be true,
this is not necessarily the case.
And while this is more common in the older generation
that are more likely to only have one income families,
it still is a concern for younger couples where
one person earns significantly more than the other.
What if the bread winner of the family loses
his or her job or is unable to work?
And as much as I hate to say it,
did you know nearly 40% of marriages end in divorce?
And more than 1 in 4 people getting divorced
are over the age of 50s
It’s unfortunate that I’ve seen couples
where they were financially stable
And once they get divorced,
suddenly one person is left without the financial means
to retire and have go back to the
work force but having trouble to it.
NO matter what,
you should put funds away in your own name.
If anything should happen,
at least you’ll have access to money in the short term.
In addition,
you should also look into a life insurance policy
so that both you and your spouse are protected
if something unexpected should happen.
This way if you or your spouse die,
the other will be financially protected
for your future needs.
It’s also important that you talk to your spouse.
Share what to do if something would happen
to the other person.
Money can be a very taboo subject.
But Don’t let it be.
Open communication is always the best to start.
We are almost there;
no.2 is that my children will help me financially.
And that may be true but it’s not
something that you want to count on.
Similar to no 6 and no 3.
Your children will have financial struggles
of their own and they might not be able
to help out as much as they want.
Imagine if you are in the sandwich generation
already and you don’t have enough to retire.
What makes you think your kids can escape
the rat race.
It does happen unfortunately so don’t think you can
rely on them for support when you are older.
Similar to the previous points,
have a chat with your kids.
Be honest with them,
share the concerns together.
the no.1 retirement myth that I heard the most.
And that is I don’t need that much money for retirement
People mistakenly think that expenses
go down during retirement.
And that’s what a lot of text book answer said too.
That retired people only spend around
70 to 80 percent of their income.
And while you can most likely achieve this,
why would you want to?
My philosophy is Why should you plan to become poor?
It just doesn’t make sense to me
You work hard the entire life so
one day you will be able to enjoy life.
what’s the point of retiring
if you don’t want to live a little?
So I say,
Go travelling, see the world
And go out for dinner once in a while.
You might say,
hey Thomas, but I can control this expense.
It’s true,
but there are 3 other things you cannot
control and they are curtained in life.
And that is inflation, taxes,
and unexpected health care costs.
If you’re forced to move into a nursing home
because of health reasons then you will find
your expenses will go up significantly.
In Canada, life expectancy is 82 years
and this number will likely only increase.
In fact, millennials are on average expected
to live between 90 and 100 years.
Do you have enough money saved
to live till you are a hundred?
If not, you should start to think
about saving more aggressively.
Think about how you can
put away more for retirement.
If you tackle these myths head on,
save as much money as possible and have open,
honest conversations
then you will be able to have lots of
options during your retirement.
And as usual,
if you have questions about your personal situation,
there is a link at the bottom,
my team and I can provide you with
some actionable steps to move forward.
Alright, this is Thomas!
Thanks so much for watching!
I will see you in the next video!