The problem is particularly acute when it comes to retirement savings. As company pensions have declined, more people are left to find the discipline to save for the distant future. But between now and then are mortgage payments and a new roof, car repairs and summer-camp fees. They are all part of the pressures that contribute to the psychology of under-saving.
But North York accountant and author David Trahair says not to worry. His latest book, The Procrastinator’s Guide to Retirement, argues that someone in their 50s can retire in 10 years even if they haven’t saved a cent.
Trahair makes the case with the simplest of personal finance strategies — spend less than you make, and save the rest. Even in a low-rate environment, he believes you can end up with a fair chunk of money in 10 years. It’s a stretch to think that’s all you’ll need. You’ll have to combine the savings with other forms of retirement income, but it may be a surprise how much it adds to financial security.
Of course, Trahair makes all kinds of assumptions. The main one is that you have a reasonable income now in order to get going. He also assumes that after years of procrastination, you can find the discipline.
But what choice is there?
Trahair believes that when people look ahead, they become overwhelmed by the big number they need for a comfortable retirement and so give up. The closer they get and the less they have saved, the more they fret.
It is not about hitting a home run with “magical and amazing investment returns.” Nor is Trahair a fan of the “what-if” charts. They show what happens if you saved X-thousand dollars a year for 40 years at some rate of return. Young families don’t have the money, and the rates of return are often unrealistic, he says.
Here’s his plain-vanilla solution:
Trahair says many will be surprised by how small amounts add up. When you combine that savings with CPP, Old Aged Security (OAS) and other assets, it’s meaningful.
“The biggest mistake people make is to give up,” Trahair says. “Even if you don’t go whole hog, you can still do something.”
More columns by Adam Mayers