New year new financial foresight

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This article was published 06/01/2024 (642 days ago), so information in it may no longer be current.

Exercising more, drinking less alcohol and eating better are all worthy New Year’s resolutions. So too is vowing to reduce spending and pay down debt. But another financial resolution worthy of consideration is pledging to save more to invest for retirement.

A host of year-end/new year surveys note that Canadians aren’t likely saving enough.

One from TD found more than a third of Manitoba and Saskatchewan residents fear not having enough money to retire.

It also added that their fears could be well founded, given about four in 10 having not made contributions to their investments in the past year.

It’s not surprising they have failed to do so, based on what another survey, this time from CIBC/ Simplii Financial, uncovered. It revealed about two-thirds of adults under age 35 feel financially stressed.

“Obviously, people are a bit strapped” because of inflation and higher interest rates on mortgages and other rate sensitive debt, says Bob Cancelli, managing director and head, CIBC Direct Financial Services.

BMO’s recent findings from its Real Financial Progress Index discovered another reason many Canadians’ sense they are not making progress toward saving for retirement. It noted that even though many people set financial goals, nearly seven in 10 don’t have a financial plan to reach them.

That makes saving for retirement — among the most important of all goals — challenging indeed.

Still, for many adults under age 40, retirement is relatively away.

“Yet that timeline speeds pretty quickly as you grey,” says Anthony Maros, senior private banker with BMO Private Wealth in Winnipeg.

In turn, the earlier you start saving for retirement the better, especially due to the benefits of compounding returns, he adds.

Yet for many younger families money seems too scarce to get a good head-start, says Toronto-based financial coach Jessica Moorhouse, host of the More Money Podcast.

“They feel like no matter what they do, there’s just never enough for their savings goals including retirement,” she says about clients she works with in her practice.

Central to their money anxiety is a lack of a plan, she adds.

The recent surveys not only point to many respondents not having a financial plan, but these studies also have found a connection between financial well being and having a financial plan.

That includes TD’s poll where among Saskatchewan and Manitoba respondents, 98 per cent with a financial plan feel they’re on track to achieve their goals.

So if you don’t have one, and you are resolving in 2024 to save and invest more for retirement, the purchase of a home or whatever the goal, go have a chat with a planning professional at your financial institution, says Pat Giles, vice-president of saving and investing journey at TD.

“It doesn’t matter what levels of savings you have or what stage of life you’re in,” he says. “You should meet with an adviser, making that first step toward a personalized financial plan.”

Starting out, a financial plan shouldn’t cost you a penny so long as you have assets with the financial institution that will at least establish basic goals for you — like when you want to retire and how much you should be setting aside every month to achieve that milestone.

Working with an adviser can also help you find money in your budget to save more for retirement.

Then you can ‘ideally, automate that savings habit so that money is transferred out automatically into a retirement savings vehicle,” says Blair Evans, vice-president of tax and estate planning at IG Wealth in Winnipeg.

Referred to as ‘paying yourself first’, this strategy takes a specified sum out of your chequing account the day after payday, for example, before you have a chance to spend it on other needs, he adds.

Once you’re saving to invest, the challenge then becomes how to invest.

This not only involves choosing investments but selecting the savings vehicle be it a RRSP, TFSA or even FHSA (First-Home Savings Account).

“The conversations (regarding savings vehicle selection) can be very wide-ranging because Canadians often have multiple financial goals,” Giles says.

He adds that the FHSA —o fficially launched last April — is an increasingly popular choice for young adults. It allows individuals to save for a home and receive a tax deduction on contributions (much like they would with an RRSP contribution). And FHSA money grows tax-free and can be withdrawn tax-free — like a TFSA — when used to purchase a home.

And if you end up deciding not to buy a home, capital in a FHSA can be rolled into the RRSP tax-free.

As for investment choices, a financial adviser at your financial institution can help you build a low-cost diversified portfolio of stocks and bonds. Or if you go the do-it-yourself route, you can keep it simple with a pre-built portfolio. Typically, this is called a ‘fund of funds’, essentially a basket of mutual funds rebalanced regularly to reflect your goals. This idea is also packaged as an ultra-low-fee exchange-traded fund (ETF) that offers the same service, Moorhouse says.

“Learning how to do self-directed investing yourself … is much simpler than what most people think,” she notes. That’s made all the easier with choices like Vanguard’s Balanced ETF Portfolio—ticker, VBAL. It captures the world of stocks and bonds in a 50-50 split in just one trade, along with a management cost of 0.24 per cent per year.

On your own or with an adviser, what’s important is establishing a system to save and invest regularly for the long term, Cancelli says.

“Even if you start small — just $25 every two weeks — it’s still a net contribution to your end goal.”