When you ask a 20 something year old if they began saving or even thinking about their retirement plan most would give you an unsure look. How bizarre is this question really? Why is something that’s many years away from now not necessarily a priority?
Generally people tend to think retirement is too far away and therefore focus their energy and efforts on the present, forgetting that retirement is not only far away but is also very expensive. That’s not to mention early retirement.
According to the U.S. Census Bureau, out of 100 people who start working at the age of 25, by the age of 65, only 4% will have enough money stowed away for retirement.
Let’s first breakdown the word retirement, what does the word mean to you? It can be leaving the job force early, having a home you own, maybe spending more time with your grandchildren, travelling, just enjoying the stay at home, relaxing and having a stress free environment, or undertaking a new project or business. Set your retirement goal now, it can change throughout time but the general idea tends to stay the same.
According to U.S. Census Bureau, if you plan to live for 20 years after retirement, you will need to save about $166,000 to receive $1000 income per month, which isn’t a whole lot of income.
To make this number a little bit easier on your mind and wallet let’s take a look at some simple retirement planning ideas for the average Jane and Joe.
Rental Property and Value Appreciation
Something is difficult only if you believe it is. Tom Hanks, Donald Trump and numerous other successful people didn’t attain their goals overnight, it took time, preparation and determination. Attaining a rental property will take the same kind of thinking. Follow the below steps to purchasing your first rental property.
Step 1 – Downpayment
If you’re still living with your parents, perfect, take advantage and save for your first downpayment. Think far. Cut back on the unnecessary expenses, save your pay, babysit, be a dog walker, you name it, the point is save money. It won’t be super easy but it can be done. Determination and your eyes on the goal is the key here. The downpayment can be as little as 5% of the property value (in most states and provinces). If the property is $300,000 your downpayment is as little as $15,000. Sounds like a lot, but it’t not, expenses add up but so do our savings, don’t let the information be bigger than you. Stay in control of your goal and you will succeed in no time.
It’s a bit of a different story for someone who has already moved out. It’s harder to save when a good chunk of your pay is gone for rent, the goal is still feasible but may take a little longer. If you have family to temporarily borrow money from then that’s great, however most of us are not that fortunate and will need to rely on our own will power and paycheque to make it happen. The important thing is to see the bigger picture – sacrifice now to benefit later. Skip that vacation or car purchase for another few years and save, it’s a sacrifice you’ll be glad you made once your goal is accomplished.
Step 2 – Find a full-time job
Get a full time job. You will need it when applying for a mortgage. If you’re still in school, your parents may be willing to co-sign for your mortgage for your jump start on investing into real estate. If not, then the property may have to wait. Ensure to deposit your hard-earned/saved money into an interest bearing account to accumulate interest while you are in school. A full time job will show the bank you have a steady income to support your mortgage.
Step 3 – Find a tenant
After you’ve found the property you like, have the real estate agent make an offer and complete the deal. Post an online advertisement to rent out the property as quickly as you can. Ensure to check the potential tenants’ credit bureau and letter of employment. Ensure you have the tenant sign a tenant agreement (simply find a generic one on the web). Now you have a property and a tenant living there. The rest is nickels and dimes.
Be proud of the fact you own a home, this home will appreciate in value by the time you are retired, and may potentially be your source of income in retirement. The tenant is paying out your mortgage, which is the best part. Even if the rent doesn’t cover the entire mortgage payment (i.e. you’re paying $100-$200 on top) you are still in a better position than you were before because you’re now a landlord.
Are You Up For Living This Way?
To spice up the first idea a little bit, consider living in the basement of your rental property (if it’s a house). This may take a little bit more effort, such as finding a property with a separate walkout from the basement and installing two separate laundries to make it work for the both of you. However, focusing on the bigger picture will free your mind and make the adjustments easier. Living in the basement for a few years and continuing to save money for a second property, while the tenant pays your current mortgage, doesn’t sound so bad. Basement life isn’t amazing, but the benefits pay off when you’re able to purchase another property to live in.
The idea is to keep the rental property until retirement, this way the mortgage will be paid off once you retire and you will have rental income to rely on for living expenses. This will allow for a more comfortable lifestyle at 65 and on. Retirement doesn’t mean you stop living your dream life, in 20 years or so, 65 may be the new 40 (who knows?) and your achievements will not stop there, life is full of desires.
401K and RSP Savings – Can You Save $3 a Week?
Complete your investor profile to determine what kind of investment risk you are comfortable with. There are all kinds of different investments out there from stocks to saving accounts and so on. Knowing your investment profile will help determine how to best invest your retirement savings.
Retirement savings, sounds like another chore or duty that must be done but there is a way to make it seamless and worry free. Set up a pre-authorized savings plan for your retirement account, to be withdrawn on a bi-weekly basis.
“Retirement: It’s nice to get out of the rat race, but you have to learn to get along with less cheese. ~Gene Perret”
Even if it is simply $9 every two weeks, set it up. Ensure it goes into an interest bearing account to allow for potential growth over the years. $9 a every two weeks is affordable and you won’t feel it at all. It’s another cup of coffee or that sandwich you buy every friday for lunch. Once you’re comfortable with the $9, slowly start to increase the amount and continue increasing it every 6 months or so. Increasing the savings amount a few dollars at a time will reduce the overall impact on your wallet. Just as our daily life expenses add up so will your retirement savings.
Why plan for retirement?
- live comfortably later
- have peace of mind
- enjoy your old age as much as you can
- because our abilities in old age are not the same as they are now