Money & Career

Our best investing advice for every decade of your life

It’s never too early (or too late) to get your financial life together. Here’s our best wealth-building advice for every decade.

Sept 2013, dollar coin, money


You, darling, are an object in motion. As the reflective fashion icon we know you are, you probably evaluate your wardrobe, shoe closet and overall style with each passing year. In almost all areas of your life — from your fitness level to your job — it’s natural to take a critical look at what still works and where there may be room for progress. You look for areas where you can make a few strategic acquisitions or embark on some personal improvement to keep you au courant. But it’s not enough to hit the yoga mat and down a couple of wheat grass smoothies. The one area that many people neglect to consider is the one with the most revolutionary possibilities — we’re talking about your finances. As Socrates said, “the unexamined life is not worth living.” So let’s examine your financial life, shall we?

Teens and early 20s: Your salad days

Just because you’re fresh and young doesn’t mean you get to ignore the green stuff! And by green, we’re not referring to the environment — we’re talking dollars, dinero, fat stacks, baby! The blissful time of youth is possibly the most low-responsibility, freedom-loving phase of your financial life. Why? Because your basic needs  (shelter, texting, textbooks, texting, food, texting, wifi ) are likely paid for by your parents, student loans or, even better, scholarships (you clever thing, you!). Extra money, part-time income or birthday cash is all yours to spend. Freedom 55? Hah. Freedom 21 is where it’s at!

Of course, as your elders like to remind you, this will change. Soon you’ll have to be self-sufficient and pay your own bills. Sucks, right? Actually it doesn’t! Achieving financial independence is glorious — just ask Rihanna. Here are three tips to you get started.

1. Save your spare change: Even though it feels like you don’t have much cash of your own, now is a perfect time to make saving a habit. Maybe all you can manage is $20, and that’s fine. The point is to develop the discipline of building (and hoarding) a private stash of your very own.

2. Pay with cash: Learn to save up before you drop money to buy anything, and especially when it comes to big-ticket items. Craving a fancy new camera so you can take gorgeous photos and get your blog noticed? Don’t even think about borrowing from the Bank of Dad. Instead, start a “camera fund,” add to it often (remember all that spare change?) and, we promise you, the acquisition will feel like a victory. You will own that camera. In contrast, spending months (or years) paying back money you’ve borrowed: total drag.

3. Resist temptation: When you feel an urge to shop coming on, wait. Sleep on it. Browse if it makes you feel better, but do not “add to your cart” or swipe that debit card without some serious, sober second thoughts. Until you’re bringing in a real full-time income of your own, flash sales are not your BFF. (And even then, they are more like frenemies.)

Like taking your vitamins, the habits you develop now will set you up for a much smoother, more beautiful life. We promise. We may not be as old as the Greek philosophers, but we’re older than you, and we’ve learned stuff. Truth.


Mid-20s and 30s: Be adult about it

At some point in your early adulthood, you will want to do something really big. And by big, we mean expensive. A new car. A year travelling abroad. A down payment on a condo or first house. A big fat wedding. A start-up business. A kid. A couple of kids. Maybe you will decide to do more than one of these things — at the same time. While your income is growing year by year, it can be hard to keep pace with your expenditures and your growing responsibilities. If you haven’t taken our first three tips yet (see “Your Salad Days”), now is the time to apply them with vigour. Here are three ways to get started.

1. Build an emergency fund: Set aside three to six months’ worth of your living expenses in a Tax-Free Savings Account (TFSA). Yes, we’re serious. This is for the day your tire blows, your tooth throbs or, heaven forbid, your job disappears. Having the cash can make the difference between a bad day and a total financial wipeout. No, this isn’t what credit cards are for. Paying 20 percent interest on top of ugly surprise bills is just masochistic.

2. Start investing: Whether it’s for your Registered Retirement Savings Plan (RRSP) or a Registered Education Savings Plan (RESP) for your kids, the earlier you embark on a plan, the more exponentially your money will grow. As you invest, compound interest means you will earn interest on interest. If you invest $286 a month from age 25 onward, at an estimated average annual return of 4 percent, you’d have about $340,000 in the bank when it’s time to retire. Wait 10 years to get started and you’ll end up with only a fraction of that amount.

3. Take a risk (or two): With such a long time before you need to use your retirement funds, you have the opportunity to weight your investment portfolio toward equities that may be on the higher end of the risk scale but have the potential for higher returns. See? You can be responsible and still live on the edge.

With such a long and prosperous future ahead of you, it’s tempting to postpone saving and live paycheque to paycheque. After all, earning good money is fun and you work hard, so why not enjoy spending it? Great — if you plan to earn a paycheque forever. Instead, apply those healthy savings habits and get that investment ball rolling now. Give your savings time to grow and multiply and you’ll be on your way to a future of real wealth.


40s: Get in the groove

Why is it that everything in your life suddenly seems to move a lot faster? In your 40s, life is busy. You’re earning more money than ever before, while also facing some of the biggest expenses of your life. Between mortgages, cottages, education costs and sometimes divorces, retirement savings can get lost in the shuffle. Yet your 40s are a critical time to kick retirement savings into gear. Now’s the time to envision your life 15 to 20 years out and make sure you’re taking the right steps toward achieving it. If picking stocks leaves you cold, here are three important ways to nurture that nest egg.

1. Go pro: With a couple decades to go before official retirement age, you still have a decent investment horizon in which you can maintain an aggressive yet well- balanced investment portfolio. Enlist an advisor or look into low-cost mutual funds and exchange-traded funds that make investing in equities as easy as pie.

2. Look for tax breaks: Taxes are the biggest bill you’ll ever pay. Take full advantage of tax shelters such as TFSAs and RRSPs in order to protect your investments and keep the lovely dividends, capital gains and interest income safely piling up.

3. Find a balance: Having the right mix of equities, bonds and cash is even more important for long-term performance than choosing the right stocks. One rule of thumb is to keep the bond allocation of your portfolio equal to your current age: Forty something = 40 percent in bonds.

Put the rest into equities (or other appropriate asset classes) and keep a small portion in cash for emergencies. If you keep your bonds matched to your age, your portfolio will get more conservative as you get closer to retirement. Make sure you check in with your portfolio a few times a year to see which investments have grown and which have shrunk. You may need to sell off some of the ones that have grown and shift money into assets that need a boost in order to regain your appropriate asset allocations. This will also keep you “selling high” and “buying low” and not the other way around. It’s called portfolio rebalancing, and it’s one of the most important keys to building wealth.


50s: It’s go time

You’re in the home stretch, baby. You can almost taste the pinot noir as you imagine chilling on your deck, planning to go into the office on . . . Neverday. But are you financially ready? Will you have enough money saved? And how much is enough, anyway? Here’s another rule of thumb: Calculate 70 percent of what you earn now. That’s roughly how much you’ll need as income once you retire. Now examine your retirement funds to see what level of annual income they can reasonably generate. With the Canada Pension Plan (CPP), Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) for low-income seniors, the government covers most Canadians for around $20,000 per year.

Is there still a big gap between what you’ve got and what you need? If so, here are three ways you can get ready for the big day.

1. Get rid of debt: Looming debt payments will only make your retirement more difficult — particularly if interest rates rise. Work hard now to pay off your mortgage if you can, along with car and loan payments and any credit card debt. The sooner you can pay off any high-interest debts, the more disposable income you’ll have to put towards your nest egg,

2. Turbocharge your savings: Get ruthless about carving out as much of your current income as you can and stashing it in savings. You won’t have the same advantage of compound interest as the young ’uns, but you have a target in view — that’s the best motivator of all.

3. Shift your strategy: You’re moving from building wealth to preserving the wealth you’ve got, so shift your assets to a more conservative investment strategy. Matching your bonds to your age still applies, but as you approach retirement time, you need to prepare your portfolio for withdrawals. Talk to an advisor about choosing safe, blue-chip equities that produce dividends and cash flow.

Remember, no one says retirement is a permanent vacation. If you’re like many baby boomers today, you’re planning your next career or starting the business of your dreams. But you haven’t reached this age without knowing that dreams don’t come true without a solid plan and a lot of effort. Now’s the time to make sure you’ve got your finances in order to turn dreams into retirement reality.


60s and beyond: Making it last

Welcome to what Jane Fonda calls life’s third act! On average, we live 20 years longer than our great-grandparents. You have another two decades ahead of you — what will you do with your time? And how will you pay for it all? After a lifetime of financial experts (like us!) telling you to save, save, save — retiring is like getting a licence to spend. No wonder so many retirees are seized by fear of living off their savings. Here are three tips to help you plan.

1. Follow the 4 percent rule: Out of thumbs yet? We’ve got one more rule for you: If you can stick to withdrawing no more than 4 percent of your total retirement savings per year, adjusted for inflation (of course), your savings should last as long as you do. But, if 4 percent of your nest egg doesn’t come close to being enough to keep you in the lifestyle you’re accustomed to (remember to add in your CPP, OAS and GIS benefits as well), it’s time to consider additional income sources like a part-time J-O-B or freelance consulting work.

2. Be tax smart: Most people’s retirement income is drawn from a variety of sources, some of which are taxed more heavily than others. It’s smart to speak with an advisor about creating a tax- efficient withdrawal strategy, so you can keep more of your wealth. Similarly, if you don’t plan to spend it all before you go, an estate planner can advise you on strategies to minimize the tax burden your estate may put on your heirs.

3. Enjoy your new-found freedom: Seize opportunities to save (and spend) wherever you can. In other words, don’t let vanity prevent you from enjoying the senior’s discount — 15 percent off rocks! And while not everyone will spend their senior years cruising the world, this is your time to do the things you always said you wanted to. Create peace in your life and your legacy. You still have time to change the world if you want to, or at least your little corner of it.

The beauty of retirement is that it can be whatever you wish it to be: relaxed and laid-back or busy and super-creative. Two decades is a long time, so stay healthy and strong and make sure your finances will be there for you when you need them. You’ve earned that (and more).


Our top anti-aging financial rules:

Like wearing sunscreen, a few rules of investing are always valid, no matter your age or income. Apply these rules generously and your finances will age most gracefully.

1. Pay off your credit card balance in full, every month. Paying interest on your purchases is totally optional (you didn’t realize that?).

2. Pay yourself first. Set up an automated withdrawal plan to move a set amount of money directly into an RRSP, TFSA or plain old savings account every payday.

3. Know your net worth. Once a year, calculate this by subtracting all your liabilities (what you owe) from your assets (what you own). Aim to get, or keep, this number positive.

4. Do not spend more than you earn. This seems obvious, but many people are shocked when they sit down and examine how much they spend each month. Pay attention and keep it real.

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