Needless to say, the COVID-19 pandemic has had a profound effect on people’s finances throughout Canada and the world. What we don’t hear as much discussion about, however, is the idea that the difficult conditions brought about by the pandemic have actually led to better money management among many.
The simple fact appears to be that less spending due to the pandemic has actually led to more savings for many Canadians. Whether out of an abundance of financial caution or simply because there are fewer opportunities to be out in the world and spending money, people are reporting that they’re actually holding onto their funds more effectively.
This is a fascinating development in that it may just result in some people learning how to be more responsible with their money. But it’s also important that people take their new tendency to save and apply it strategically to their futures. In particular, now would be an excellent time for Canadians finding themselves saving more to refocus their energy on retirement planning.
To help with this effort, we’re presenting four specific tips that can help with efficient and effective retirement saving.
Cover Debt Early
As one article about how to retire early pointed out, the number of 60- and 70-somethings with debt today has skyrocketed. That debt can be a result of mortgages, credit card use, and even student loans — but in any case, it can cut into retirement funds on a regular basis. For this reason it’s recommended that people planning actively for retirement avoid accruing debt as they age. But if you find yourself saving more money now, it also means you might want to use those savings to address existing debts.
While you certainly don’t want to funnel away more money than you can afford to if the pandemic has affected you financially, directing extra savings toward debt gets you that much closer to financial freedom. And once you reach that point you can be more proactive about retirement planning.
Pick a Plan You Can Draw From
When it comes to your actual retirement savings plan (such as an RRSP), it’s wise to choose a plan you can easily withdraw funds from in the event of an emergency. Now, to be clear, this isn’t something you should necessarily plan on doing. The negative effects of withdrawing your RRSP early can include tax penalties, not to mention you’ll be directly reducing the compounding growth of your savings.
However, there’s still a benefit from choosing an RRSP arrangement you can withdraw from, which is that you may be more inclined to save. If you know that you have the option of withdrawing money if a great need arises, you may find that you’re more confident regularly directing savings toward retirement (rather than just keeping them on hand).
Invest Without Emotion
If personal investment is part of your retirement strategy, in addition to a specific plan, always keep in mind that you should handle your money without emotion. The use of bad investment behaviour — meaning investment driven largely by emotion — is one of the most common causes of losses in the markets. As such, it can have a direct negative impact on your retirement planning.
Alternatively, reasoned, strategic investment can set you up to benefit from steady, long-term gains. This is particularly important to remember now, if you’re accruing more savings during the pandemic. While it may be tempting to jump at one of a handful of apparent activities with those savings, it’s still vial to maintain a careful, pragmatic approach with any long-term investment.
Don’t Take Breaks
Even if it’s a good idea to be careful with savings during the pandemic (or any other crisis to come), it doesn’t mean you should take a break with your retirement planning! Always keep in mind that the more money you put away now, the more time you’re giving it to grow. And the greater portion of your savings you squander or hold onto without purpose, the less you’re doing to protect your future. So long as you remain strategic in your decisions, the most important point of all is to remain active in your retirement saving and planning.
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