Enjoying a comfortable retirement is common goal for most all Canadians. As such, a retirement savings strategy is a key element of most any comprehensive financial and retirement plan. To assist us, there are countless financial advisors, retirement planners, and online tools and resources available to help us determine how much we should save in order to reach our retirement goals.

Yet, many Canadians are not properly prepared for retirement. We often end up working much longer than expected, and end up with lower incomes and a lower standard of living in retirement as a result. Why?

While there are numerous reasons why people are unprepared for retirement, there are also a few very common issues that seem to plague a vast number of us when it comes to retirement savings. Let’s explore ModernAdvisor’s “Top 3 Roadblocks to Retirement”.

Roadblock #1: Procrastination

Starting early is one of the keys of successful investing and a successful retirement. Indeed, we’ve all be told many times before about the importance of starting a regular investment strategy as early as possible. The reason, of course, is simple – the longer you wait to start saving for retirement, the less time you have to build your retirement savings.

However, it’s important to realize that investment growth is typically not linear. Due to the power of compound growth, we typically accumulate significantly more assets in the final 5 years of retirement savings than in the first 5 years. So, while you can’t control your age, the one thing you can control is your starting point. And by starting to build your retirement savings early, you can enjoy the maximum amount of time for investment growth in order to reach your goal.

Although the process of getting started can seem daunting, it’s actually very easy to open an investment account and set up a regular contribution plan. The easiest and most effective strategy is to set up regular, monthly contributions of a fixed dollar amount, for example, $250 per month. This type of investment strategy is also known as dollar cost averaging, and is a great way to help stay on track with your retirement savings plan.

Roadblock #2: Insufficient Cash Flow

Perhaps the most common excuse among those not saving for retirement is, “I can’t afford it.” No doubt, that may be true for some. But for the vast majority of others, it’s more a matter of priority rather than ability. That is, many who say they can’t afford to save for retirement actually do have the money available, but simply chose to spend it elsewhere.

If you’re having difficulty finding the money to save for retirement, consider creating a personal cash flow statement to help better understand where your money is going. A cash flow statement is simply an inventory of your cash inflows and outflows throughout the month. When creating your cash flow statement, it’s important to distinguish between discretionary and non-discretionary expenses. This is often referred to as separating “need to have” from “nice to have”. While you can’t decide to pay less rent, you can decide to eat out a bit less often, or spend a little less on clothing. And in doing so, you can often find the funds required to get yourself on track with a good retirement savings strategy. Remember, budgeting isn’t about doing less, but rather, is about making the most of what you have.

Roadblock #3: Divorce

Divorce, or common law relationship breakdown, can have a devastating impact on personal finances.

According to Fairway Divorce Solutions, a Canadian divorce and mediation company, several legal surveys have shown that the average cost of an uncontested divorce in Canada can be between $4,800 and $6,800 per person. Note the key word here is, uncontested. As we know, many divorces involve bitter disagreements, disputes, and court battles. In Canada, a contested divorce can start at $24,000 and, depending on the circumstances, a 5-day court dispute can reach up to $82,000 per person.

Indeed, divorce can cost tens or even hundreds of thousands of dollars, wiping out years of retirement savings. One way to avoid, or at least significantly reduce the costs associated with divorce, is by using a prenuptial agreement. A prenuptial agreement, or simple prenup for short, can help save time and money in the event of divorce. Divorce can be costly, but is doesn’t have to be. A properly constructed prenuptial agreement can help provide for a much more efficient divorce process.

Bottom Line

For many Canadians, a comfortable retirement is well within reach. It just requires a little financial discipline to remain committed to your retirement savings plan. If you you’d like some help setting up your retirement savings plan, we can help you crunch the numbers and put your plan into action. To chat with a Portfolio Manager or Certified Financial Planner, just contact us.