08/12/2014 05:25 EDT | Updated 10/12/2014 05:59 EDT

We Are Living Longer and Not Saving. Let's Change That

The fact is we are living longer and not saving. And most of us have no idea how much to save in order to have a care-free retirement that reflects our lifestyle needs. Recent research suggests that a nest egg of $750,000 is required.

All of us seek financial security. Retirement may be one of the longest phases of our lives. Some of us could live to age 100 and with the average retirement age of 67 would mean 33 years of retirement living. Having a savings plan for a long life is a prudent strategy.

There has been much written lately about longevity and longevity risk which for most us doesn't mean much unless you understand it's relevancy. Longevity risk is the (horrible) notion of running out of money in retirement or the "bag lady syndrome -- being homeless and broke in retirement because we have outlived our money (not my favorite way to talk about retirement)." What can we really do about it? More than you realize today.

Canadians are living longer and planning for a long life has never been more relevant. It's a defacto standard. The average life expectancy in Canada for women is 84 and for men is 80. For most of us living your best life today matters. Many of us are burdened by the high cost of living, wages and incomes are not growing and personal debt is at an all time high. It's a challenge to know what to do with our discretionary income (money left over once all our fixed living expenses are covered) when our money demands so much of us. How do we afford paying down/off our mortgage? Saving for our children's (our own) education? Making a major purchase? Renovating the kitchen and/or bathrooms? Saving for retirement?

For most of us planning for retirement is the last thing on our mind. It isn't top of mind unless you find yourself in the retirement corridor and that's all you can think about. For the rest of us it is hard to envision our future self -- getting older -- and maybe that is why only approximately one quarter of eligible Canadian tax payers contributed to a retirement savings plan. Approximately half of Americans are not saving for retirement. Because when we start to think about our future self it can create undue anxiety and stress because this means we have to acknowledge we are getting older. And who wants to get older except a 10 year old?

The fact is we are living longer and not saving. And most of us have no idea how much to save in order to have a care-free retirement that reflects our lifestyle needs. Recent research suggests that a nest egg of $750,000 is required. For some of us this doesn't sound like a lot of money, and for most of us the amount is staggering. The reality is how much you will need in retirement really depends on a lot of variables mainly lifestyle choices, how you plan to spend your time, where you are going to live, health care costs, spending etc. Experts can't agree on the magical number for retirement, and who knows what condition the government pension plans will be in when it is time to retire.

So how can you take the worry and fear out of retirement planning? The first strategy is to plan for a very long life. The choices we make today with our money could have long term implications on our financial security, lifestyle and comfort. Because life expectancy is a big unknown, we must outsmart and outwit the longevity by controlling our future now. Worrying and living in fear about running out of money in retirement is self defeating and powerless. What does create power and peace of mind is taking action and putting in place a saving strategy on auto pilot so you can set it and forget it, and live you best life today.

What stage are you at?

If you are in your twenties retirement may seem so far away. It's a concept you are thinking about but unlikely to embrace. Where to begin? How to start? However, you can outsmart longevity risk by kick starting your retirement savings today while you are young. You have the best chances because you have time on your side. The idea of "set it and forget it" comes to mind. If you start saving now you can forget about worrying the rest of your life about saving for a long life because that is exactly what you are doing. How empowering is that?

For illustration, if you have $5,000 saved and over the next 30 years add $100 per month with an interest rate of 4.5%, your savings would be worth $95,177.10. This illustrative example is given to show you the time value of money. To see for yourself, try the savings calculator at Most of us could easily find $100 a month to save. For example, you could bag your lunch and make coffee at home. Don't boil the ocean. Make small incremental changes to your spending. If you can afford to save more than $100 a month, save it. Your future self will thank you.

If you are in your thirties and forties, you most definitely have thought about retirement particularly when you are career/ work focused. Living the best life today matters and you can outsmart longevity risk by starting monthly contributions or increasing your monthly contributions to accelerate growth of your retirement nest egg. Some refer to this as "catch-up." However, the only difference between now and when you were in your twenties is your time horizon is shorter and you will therefore have to accelerate your savings. Taking the above example, you will need to add more money and lessen the time horizon. If you have saved $5,000 and save $250.00 a month for the next 20 years with an interest rate of 4.50% compounded, your final savings is Savings Balance: $109,308.42.

If you are in the retirement corridor, and don't have a sizeable nest egg you may have to consider more aggressive strategies. You may have to make some difficult lifestyle choices and/or work longer. There is always a solution you just have to be willing to accept it.

So, what's your plan?

Living in fear about the future and worrying about running out of money in retirement won't help you sleep better at night or worry less. It will increase your anxiety and over the long haul it could take its toll on you.

When you think about retirement, think about it as a phase of your life much like your working years or starting out. The most essential thing to do is to plan to live a very long life. Leverage the power of automation, the time value of money and investing in the stock market to build a retirement nest egg while enhancing your financial security.

When living your best life today is all that matters, you can hedge against the longevity by becoming a savvy saver and outsmart the unknown by getting your money working for you today, for your tomorrow. It's that simple. Really.


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