A few years back, I was presented a piece of research about what drives people to avoid dealing with their personal finances. The simple answer – and this was found in multiple countries – was that the whole thing is just too complicated. Despite a genuine desire to do the right thing for ourselves and our families, many of us are simply overwhelmed.
Bruce Sellery gets it. His new book, The Moolala Guide to Rockin' Your RRSP, offers a five-step plan meant to strip away all that unnecessary complexity. "I don't want people to become personal finance hobbyists," he told me in an interview last week. "I don't think that's realistic. Most people won't, and they don't need to. If they do a couple of things right, if they have a couple of great habits, they actually don't need to do much."
Step one: Lay the foundation. "It's so important to identify your motivation first and foremost," Sellery said. "What is it you actually want to do when you retire? Because there is this notion that retirement is a nebulous thing. It's not. You will have time on your hands and no money coming in the door."
Think carefully, and in as much detail as possible about what you want to do in retirement. It's not enough to simply plan on travel. Where do you want to go, how do you want to get there and what will you do when you're there? "We plan for things that are real," he said. "That helps you calculate the cost. Your nest egg is going to be different from my nest egg if I want to go on world cruises and you want to garden in Pickering."
Step two: Determine how much you need. "It is the most basic thing in the world, and yet most people don't have a number," he said. "You can only really develop a plan once you've got a goal." Remember, this is a personal decision. Retirement is a reward; it's your time off for good behaviour. Make sure it's the lifestyle you want (provided, of course, that you can afford it).
Steps three, four and five: Develop the plan, take action and stay engaged. Several to-do items here:
- Articulate your retirement goal.
- Choose a retirement savings vehicle.
- Determine how much you can contribute.
- Open a Registered Retirement Savings Plan (RRSP) and contribute to it.
- Decide how to invest your contributions.
- Automate your retirement savings.
- Increase your RRSP contribution.
Automating your savings means paying yourself first each month with a pre-arranged transfer from your bank account to your retirement savings account. "I don't want you to have to think about where you are going to find that $500," said Sellery. "It's just gone. It belongs to your 80-year-old self."
This is not to say that you should stop paying attention. Review your investment statements, for example. "There are certain areas that you have to stay engaged in," Sellery said. "You need to meet with your financial advisor once a year."