On the road to financial comfort and a history of good investments, it is more than likely that you’ll run into your fair share of bumps and pitfalls. These hard times can be pushed through (and you’ll be stronger for them), but unexpected twists of fate can affect anyone’s financial standing.
There is no explicit amount of money noted for someone to retire comfortably in Canada, but the average Canadian seriously underfunds their retirement, often believing they can get by with well under $1-million in savings. At the same time, it can be hard for a prospective retiree to see how that amount can be reached after being dealt a heavy financial blow.
Here are some things to consider when recovering from a hefty loss; ranging from what age it happens to where and what you should invest in to when to stop working.
Get Back On The Horse: Saving For Retirement After Financial Losses
1. Age matters
Losing a substantial amount of money in your late twenties, early thirties bodes a far different reality than if the losses occur later on in life. While the markets can’t ever truly be tamed at any point in your life, major financial losses suffered earlier on can be made up much easier if there is a substantial period of time between you and the time you plan on retiring.
2. Types of investments to help save
The number of investments one is able to participate in can make your head spin. They are seemingly endless. But the good news is two distinct forms of taxable and tax-free reinvestment avenues in medium or high-yielding stocks with a big return are available to you.
Your Registered Retirement Savings Plan (RRSP) is taxable but with a higher return available to you. As well, your RRSP, depending on the plan negotiated with your company, can become wealthier with your work matching a small or full percentage.
Tax Free Savings Accounts (TFSA), on the other hand, are already taxed portions of money that you deposit in an account and can see grow on your own terms.
3. Bankruptcy won’t end your retirement dreams
In the extreme case of having to file for bankruptcy, all of your retirement savings will take a hit. Your debts may be eliminated but you’ll lose a year’s worth of your RRSP. The hit this does to your retirement savings, if they exist at all in this case, is enough to feel stressed about the future. But this type of loss absolves your debts, which allows for room, when money can come in, to be put aside into saving for retirement.
4. Budget
The concept of a budget is fundamental to almost every aspect of the money world. It is extremely important in the case of recovering from monetary loss because your future is at stake otherwise.
5. Keep working
While this is the least ideal of all the options available, it is the one that does provide steadier income and potential for saving. It no longer needs to be Freedom 65, but maybe 68 or 70. This goes hand-in-hand with the importance of what age the financial losses occur and if they can be made up or not. Working gives you the option to still benefit from a stable income while squirreling away savings as they become available to you.