Turning the Tide: Overcoming a Late Start in Retirement Saving
Today, we're diving into the story of Pam—a remarkable woman who transformed her financial life in ways she never thought possible. If you’ve ever felt aimless about your retirement savings or worried it’s too late to start, Pam’s journey is bound to resonate with you.
Pam had a successful career in sales and marketing but found herself at a crossroads after her divorce. Without a home, a solid retirement plan, or a clear financial path, she felt lost and unsure of her future. However, with the right guidance, Pam turned her financial life around. From creating a mindful spending plan to leveraging automated budgeting software, she took charge of her finances and set herself on a path to a secure retirement.
But it wasn’t just about numbers and accounts—Pam discovered how to enjoy life without breaking the bank, embraced new opportunities, and even found love again! Her story is a testament to the power of planning, persistence, and positivity.
So, if you’re ready to be inspired and pick up some practical tips on retirement saving in Canada, keep reading. We’ll walk you through Pam’s journey and show you how you can achieve financial independence and enjoy the life you’ve always dreamed of.
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Prefer to Listen?Here’s the podcast episode!
I want to talk to you today about a client of mine who has undergone a financial journey. I hope that by hearing the story of Pam–we’ll call her Pam–maybe you’ll recognize yourself. And maybe it will help you on your financial journey.
Pam's Financial Journey: From Divorce to Financial Freedom
Pam had had a great career in sales and marketing. After she divorced her husband, she travelled a great deal for work, so she never really felt settled. After 15 years, Pam was feeling a bit aimless about her life.
She had a wonderful, caring tax accountant who knew that Pam needed some guidance, so her accountant recommended she sit down with me and have a conversation to see if I could help.
Assessing Retirement Plans and Financial Goals
I asked Pam about her plans for retirement. What were her past experiences about money and what goals did she have for herself for the future? She told me her plan was to die young because her money wasn’t going to last long in retirement. The joy had gone out of Pam’s life and she was lost.
In her sales position, she loved her clients but disliked senior management at her job. She didn’t know how much longer she could take working there but she was in her 50’s so she was afraid to leave.
She sold her house to her husband when they divorced and had rented for the past 15 years, so she didn’t have any equity in real estate at the moment.
She did have a few investment accounts at her local bank. I felt we could offer her a more diversified investment portfolio, so our team handled the switch of those accounts to our office for her.
While we were waiting for that switch, Pam realized that her most pressing issue was that she didn’t have a good idea of what she was spending her money on.
Automated Budgeting: A Game Changer in Financial Planning
However, like any busy working person, she didn’t have the time to manually keep track of her household expenses. So, I suggested that she use automated budgeting software to handle it for her. The software I suggested back then no longer exists, but the one I like and that Squatch and I use personally is called Monarch Money.
Pam loved the automated budgeting software and after one month, she provided me with the total of her household expenses. I prepared some cash flow projections for her to find out how long her current investment savings would last if she were to retire at age 65. We could see that her money would run out in her 70s.
So, we talked about this. How long was she willing to work? What was she willing to stop spending money on and what expenses were non-negotiable? What would she do if she could no longer work? And, was she willing to live in a less expensive area in retirement in order to make the numbers work?
Delaying CPP Payments for a Secure Retirement
Another way to make Pam’s income last longer in retirement was to delay the start of her CPP benefit payments.
You see, if Pam doesn’t take CPP at age 65 and instead starts receiving payments when she’s older, her CPP benefit payments will be 0.7% larger every month she waits than they would be if she turns on the switch at age 65.
So, if she says, “hey, CPP team, start sending me my CPP payments when I turn 65 years and 1 month old.” If she does that, her benefit payments will forever be 0.7% larger than they would be if she started them when she turned 65.
Doing the math, this meant that if she waited to receive her CPP payments until she was 70 years old instead of taking those payments when she is 65, her monthly payments will be 42% higher than they would be if she started receiving monthly payments at age 65. Effectively, she’d be earning an annual 8.4% return guaranteed. Where else can you get that?
So, by continuing to work and waiting as long as possible to take her CPP payments, her money will last much longer after she retires.
Building an Emergency Fund and Long-Term Savings
But, delaying her CPP payments wasn’t going to be enough to make her money last the rest of her life. She needed to start saving.
The first thing we made sure of was that she had enough money saved in a regular savings account at her bank to last her for 6 months if she were to lose her job. That way, if she lost her job or had an emergency expense, she wouldn’t start going backwards getting into debt in order to live. Luckily, she had enough savings to last her 6 months if she lost her job.
Next, we talked about her long-term savings plan for retirement. If you have a group RRSP at your job, starting automatic contributions into that plan through your payroll department is a great idea. But that wasn’t an option for her, so I helped her start saving by setting up to have money automatically taken from her chequing account every month and depositing it into her RRSP and her TFSA to grow her money. I explained that if she were to lose her job, all she had to do was call me and we could immediately stop those deposits to give her a little breathing room.
The Homeownership Decision: Renting vs. Buying in Retirement
Next, Pam and I talked about whether or not she wanted to start saving to buy a house. Now, you may have read articles about the pros and cons of renting a house versus buying a house after you retire.
If you are living in the U.S. in a metropolitan area, maybe you can have that discussion. The problem is, in Canada, and particularly in the suburban area where Pam lived, you have to also consider whether there’s a large amount of rental housing even available. In some cities in the US, vacancy rates can be in the double digits. But in our area of British Columbia, the vacancy rate is less than 1%. The reality is that it’s not if but when are you going to get displaced from your home. And do you really want to be dealing with that when you’re older and on a fixed income?
Pam was renting a lovely ocean view condo at the time and didn’t want to move. But she realized that could change at any time, so we began earmarking the savings in her Tax-Free Savings Account for a downpayment on a home. This was before the First Time Home Buyer’s Account had been created. We would have used that instead if we could.
Sure enough, about six months later, Pam’s life changed suddenly when her elderly landlord and family members needed to move into the unit she was renting, so Pam had to move out. The chances of finding an ocean view apartment anywhere near the same rent she was paying was zero, and Pam was done– she didn’t want to take the chance of being booted out again. She began looking for condos to purchase.
I connected Pam with a good mortgage broker who began to work on pre-approving her for a mortgage. That mortgage broker and I began coordinating the best way to find her down payment. Pam hadn’t owned a home in over 4 yrs. That meant that, in addition to the money she had saved in her Tax-Free Savings account, we could also take money from her RRSP through the Home Buyers Program. Some people aren’t aware of that. Even though she had owned a home with her husband, enough time had passed that she was considered a first-time home buyer again under the rules of that program. Those same rules now apply to the new First Time Home Buyer Savings Account, by the way.
She was so happy to finally have her own home and it was a beautiful place. A year later, though, she called me to let me know she had lost her job. We talked a lot about the good and the bad in that situation. The first thing we did was stop the automatic deposits going into her retirement account and remember she had 6 months of savings in her emergency savings. By that, I mean 6 months of expenses.
On the one hand, she was concerned about how she would pay her expenses. On the other hand, because she had created a mindful spending plan, she found that it didn’t cost her much to enjoy life. Before we met, she tended to shop for recreation–”retail therapy.” Nowadays she was going on long walks, biking, meditating…doing things that don’t cost much money and were feeding her soul. She did have Employment Insurance and a severance package, and that would help her during this transition.
Finding New Employment and Financial Stability
The upside was that she had the space to take some time and find a job that she enjoyed doing, because she hadn’t enjoyed the one she had lost. Pam said to me, “In the past, I’ve taken the first job that came along because I made those decisions out of fear. I’m no longer going to give into fear anymore because I know whatever happens, I can handle it.“
We checked in regularly during that time and as different job offers came up, we talked about them and the pros and cons of each. Because Pam was single, she appreciated having another pair of eyes looking at her financial situation at all times and being able to bounce ideas around and also share the fears she was experiencing.
A few months later, Pam had found her dream job. She was so happy. It paid more than she had earned at her previous job, so we started automatic deposits into her retirement savings account again.
Things went really well for Pam for the next few years. We got together twice a year to review her investment portfolio and determine if it still matched her values and goals.
Preparing for Early Retirement and Life Changes
Then, I received a happy call from Pam. After twenty-some-odd years, she had found a loving partner. The gentleman was someone I was acquainted with, so I knew what a good guy he was. He was retired and the two of them wanted to embark on an adventure together. How could they do that if Pam was still working? We had been counting on her working till at least 65 and she hadn’t reached that age yet. She wanted to know if we could step that up so she could retire within a year.
Here’s what we looked at to see if that could happen. I prepared eight different scenarios for Pam and calculated how long her money would last in each one. Why so many scenarios? Because we had so many different variables to look at. Should she sell her condo or rent it out? Where would she live after they finished travelling the world for the next few years? Should she take CPP now or later? What about OAS? Pam was overwhelmed with so many decisions to make, so I prepared a simple table that showed the result in real dollars of each choice combination.
The result still required her having a discussion with her partner and making the best decision she could given the uncertainties of the future, but by having this decision table, it made things easier for her.
What did Pam decide to do? I’ll tell you that in a minute.
Achieving Financial Goals and Retirement Dreams
First, let’s talk about all she had accomplished with our help over the previous five years.
She had left a job she hated and found one she loved. She started out with no home and no down payment. Now, she had the security of owning her own home. In a few short years, the value of that home doubled, giving her even more choices about when to retire.
She had created a mindful spending plan that matched her goals and she soon discovered she didn’t want for anything because she spent money on what was important to her.
She saved a certain dollar amount every month by having the money come out automatically from her chequing account. She didn’t even have to think about it, it didn’t affect her lifestyle and it grew quickly.
She left space to do things she loved and become the person she wanted to be and ultimately that opened her up again to a new relationship, which came to her as a complete surprise.
So, what did Pam end up doing? She did retire early from her work on good terms, leaving the door open to working as a consultant in the future once her travel adventure was over. She sold her home and our team invested the proceeds for her, allowing her to draw some income now while her retirement accounts continued to grow. She’ll have options when she returns, but most important, she’s having the time of her life while they’re still young and healthy.
I hope this story inspires you to take a look at your own financial story and find ways to lead to your own happy ending. Our office is accepting new clients this year. So, if you live in Canada and want to get serious about getting your financial house in order, go to GloryGray.com and get in touch with me.
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