Friday, September 16, 2011

For retirement start saving early and save lots

I read the following in the Globe and Mail today:

"[a declining market] is a rare opportunity to be treasured, if you can build a retirement portfolio of strong companies with dividend yields of 5 per cent or more. If you have had good advice or been smart yourself, you may just be able to take advantage of these investments in the coming weeks and months. If it is built right and timed right, you may just start your retirement with one of the best pensions around."

This is good advice. Until you actually retire, you will not know how much income you will need. There are lots of sites on the Web with estimates of how much you will need. These estimates are usually expressed as a percentage of your final annual income.

The estimates vary greatly and reality varies even more.

I live in a rambling, three bedroom bungalow. It is a perfect home for a retired fellow with a heart condition. Perfect that is until something needs repair. This summer my wife and I had to have a new roof. This cost $15,000. Ouch!

And behind our home we have large hill with a retaining wall going right across our rather wide, suburban lot. The original wall was made from stacked and interlocking railway ties but after 25 years it was completely rotted. We had to have a new wall --- about 55 feet long and six feet high built. I haven't got the total bill but I'm sure it will be another good one. Ouch again!

And it wasn't in the budget, but I had to buy a new car. I got a 2011 Volkswagen Jetta TDI. On the bright side the payments are only about fifty dollars more than what I had been paying for my old Saturn Ion and the new beast is delivering more than 40 mpg in the city. Still it wasn't in the budget. Ouch, yet again!

What I'm getting at is that one not only has to have money to cover day to day expenses but enough money to cover the emergencies that crop up with some regularity in life: furnace repairs, air conditioner maintenance, washer and dryer repairs, snow tires and rims, etc.

Don't be cheap when planning for retirement. If you do manage to save too much, you can always take a cruise to celebrate. If you don't save enough, not taking a vacation will be the least of your worries.

FYI: Keep a record of your annual expenses. If you use Excel you can easily average your annual records. It is really not that time consuming and you will be surprised at how much it actually costs you to live. I credit my careful records for giving me a good handle on what retirement was going to cost.


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