Tony Facchineri, pictured with his son Frankie at home, said he didn’t think much about saving for the future until he began working for the Caesars Windsor Hotel and Casino.GEOFF ROBINS/The Globe and Mail
People saving for retirement face plenty of challenges, including employment bumps, stock market turmoil and family twists and turns. Add misperceptions about saving, investing and personal finance to the mix and the task can seem daunting.
Tony Facchineri, for instance, said he didn't give much thought to saving or investing for the future until he was hired seven years ago by Caesars Windsor Hotel and Casino and he ticked off the company pension box as part of his benefits package.
Before that, the 44-year-old, who is senior manager of food and beverage at the casino in Windsor, Ont., always thought it was too early to consider retirement planning. He and his wife, who is an educator, have always focused on meeting their daily personal and housing needs, and saving for their children's postsecondary education.
"In my perspective, you think that when you're young, there's always time to make money," said Mr. Facchineri, a married father of two children ages 13 and 11 who previously owned a bar in the city.
But waiting to invest "can be very costly," says Tina Tehranchian, a certified financial planner and branch manager with Assante Capital Management Ltd. in Richmond Hill, Ont. Investing earlier in life allows you to better take advantage of the magic of compounding – generating earnings on your previous earnings.
She gives this example: If you start saving $1,000 a year at 25, and assuming you earn a 5-per-cent rate of return, your investment will grow to $126,840 in 40 years. If you don't start saving until you are 45, you will only have $34,719.
Here are a few other common myths about retirement:
Myth: I won't be able to buy a home if I put money away for retirement
Many investment vehicles can be used to meet short-term goals such as buying a home. For instance, a tax-free savings account (TFSA) can be cashed in, with no penalty, for a downpayment.
Even RRSPs, mostly meant for retirement use, can help in realizing home ownership dreams. "You can take advantage of the RRSP Home Buyers' Plan and withdraw up to $25,000 tax free from your RRSP if you have not owned a home in the previous five years," says Ms. Tehranchian. The money withdrawn must be repaid over 15 years, experts note.
Jeanette Brox, a certified financial planner and senior consultant with Investors Group in Toronto, adds, "A couple wanting to purchase a home would have $50,000 [in RRSP funds] available, and the money is taken out tax free."
Myth: Investing carries too many risks
Fear of risk is usually proportionate to a lack of knowledge and experience, says Ms. Tehranchian, which can be overcome through experience in the market and education, often with the help of a financial planner.
Samuel Waxman, managing partner and financial adviser with Toronto-based Millennial Financial Group, adds that a good investment plan for most people consists of a diversified portfolio made up of stocks, mutual funds and bonds with varying levels of risk. Those who are younger can usually take on greater risk because they have more time to make up any losses.
Myth: Paying off debt trumps retirement saving
If you're burdened with high-interest credit cards or loans, paying them off first is always a good idea, experts say. However, adds Ms. Tehranchian, "depending on your income tax bracket and the interest rate you are paying on your loans and your risk tolerance, it may still make sense for you to contribute to your RRSPs and use the resulting income tax savings to tackle the debt."
Ms. Brox says, "If you wait to be debt free, you will never start [retirement saving] and have sacrificed the value of compound growth." A smart financial plan can help you put away even a little bit every month, regardless of debt, she says.
Myth: My work and government pension plans are all I need
Fewer companies offer pension plans these days, and talk about Canada Pension Plan (CPP) reform continues, so Canadians have more reason to be vigilant about building their own RRSP and other retirement income.
"Most companies are getting away from pension plans as the actuarial costs are prohibitive and the employer doesn't want to be responsible for managing the investments," Ms. Brox says. "If you are lucky enough to have a company pension and your employer matches your contributions, that is like free money."
Ms. Tehranchian adds: "Work pension plans … come in all shapes and forms, and you need to assess whether your pension plan will truly be adequate for your retirement needs."
Myth: My inheritance will take care of my retirement
You should not count on money from family when planning for your retirement, warns Ms. Tehranchian.
"We are living in an age when longevity is increasing, and with longevity comes the need for and cost of long-term care," she says. "You may be surprised at how much of their wealth your parents may end up spending during their own lifetime if they live too long."
Myth: You need to have a lot of money to invest
No amount is too little to make an impact on future savings, in part because of compounding, the experts say. "You can start saving with $50 per month, which is $1.67 per day. What can you buy for $1.67 per day?" says Ms. Brox.
Adds Mr. Waxman: "Everyone can afford to put $2 a day away for their future. That's $720 a year in just principal. It adds up quickly."