In his practical, clear and helpful book – Everything You Need to Know About Saving for Retirement – author Ben Carlson identifies the problem of low savings rates and offers up a clear approach to get going on saving.

He begins by noting that “four million people (are) reaching retirement age annually in the United States,” and that “the vast majority of them are ill-prepared for this next stage of their financial lives.” Half of those aged 55-61 in the U.S., he writes, have saved less than $21,000 for retirement; half of those aged 50-55 have less than $11,000 in savings.

Yet, retirees can expect to live more than 20 years, on average, in retirement, he notes.

While building wealth is “simple… just live below your means, save the difference, and invest for the long term,” Carlson makes the point that because something is simple does not mean it is easy. “Getting your finances in order is more difficult than it seems because money impacts so many different aspects of your life,” he writes.

Nevertheless, Carlson identifies three things “you need to get right to give yourself a chance at financial independence one day,” specifically:

• “Save at least 10 per cent of your income (preferably 15 to 20 per cent).”
• “Make your saving and investing automatic.”
• “Think and act for the long term.”

“Saving money provides a margin of safety when life inevitably gets in the way of your best-laid plans,” he writes. “The last thing you want to worry about when life throws you a curve ball is money. Money issues amplify stressful situations.”

So, you want to start small, he explains. Small wins. He started with just $50 a month in his first job, and over time “I slowly increased the amount saved. Every time I received a raise, I would bump up my savings rate.”

He gives the example of famed investor Warren Buffett, who at age 60 had a fortune valued at $4 billion, but turned 90 in 2020 with a net worth of $70 billion.

“Real wealth for normal retirement savers comes from a combination of saving, compounding, and sitting on your hands. It takes time and it’s not easy. It could take decades to see extraordinary results,” he explains.

Another tip is to start young, he writes. “Starting at a young age not only helps you take advantage of compound interest, it can also save you stress and financial strain later in life,” he continues. All is not lost, he adds, if you are older, but it will take “some more planning and a higher savings rate.”

Talking about investing, he says you have to be comfortable with risk – what goes up can go down. “If there is an ironclad rule in the world of investing, it’s that risk and reward are always and forever attached at the hip,” he explains.

He suggests that putting your budget on “autopilot,” or automating “as much of your spending and saving as humanly possible” and spending only “what is left over” is an effort that “requires more work up front but the benefits can last a lifetime.”

Near the end of the book, he advocates paying yourself first. “Saving is more important than investing,” he writes. “Pay yourself first is such simple advice, but so few people do this. The best investment decision you can make is setting a high savings rate because it gives you a huge margin of safety.” As well, he concludes, the savings rate is something you have control over.

While this book is intended for a U.S. audience and has chapters on American retirement savings plans and government benefits, the core of the book offers sound advice for any reader – it is highly recommended!

The Saskatchewan Pension Plan allows its members to use an auto-pilot approach. You can set up pre-authorized contributions to SPP from your bank account, so the money goes into your retirement nest egg before you have a chance to spend it. And, as the book suggests, you can up your contributions any time you get a raise. It’s a “set it and forget it” way to build your future retirement security.

Check out SPP today!

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I comb the blogosphere every week to come up with interesting links for this weekly column. I continue to be fascinated by bloggers who document “early retirement extreme,” (ERE) often in their 30s and 40s. It is important however to recognize that for many people, this does not mean completely leaving paid work behind. It simply means that they have accumulated a financial cushion which gives them the freedom to work less or do something different.

For example, last month Tim Stobbs wrote I Don’t Have Enough Money, But I Retired at 40 Anyway.  He says, “What I’m doing really isn’t a full on ‘I never plan to work again retirement’ but rather an ‘I plan on doing some fun work during a semi-retirement.’  And that little shift of wording regarding what I planned to do made a huge difference between being able to leave now and being able to leave two to five more years in the future.” Stobbs is going to take a stab at writing fiction first for some income and if that doesn’t work out he will consider other options.

Firecracker and Wanderer are married computer engineers who retired in their early 30s. They blog on Millenial Revolution. The built a seven-figure portfolio and live off the passive income which allows them to travel the world and work on projects they are passionate about. They offer a free 53-part series of investment workshops on their blog and they have been widely quoted in the media. But they also write children’s books, develop apps for non-profits and teach children how to code.

In a recent blog, Firecracker interviewed Derek Foster: Canada’s Other Youngest Retiree. Foster, who is well-known to savewithspp.com readers retired at age 34 and he and his wife had eight children since then. He supports his family primarily with dividends generated by his stock portfolio. However, the self-identified “Idiot Millionaire” wrote six investor books and offers portfolio picks for a fee on stopworking.ca. He also accepts paid speaking engagements.

Some people who retire extremely early go back to work a few years into their retirement and take on short-term consulting assignments for a limited period. For example, Retired Syd who packed it in at age 44 in 2007 took on an assignment for several years and returned to full-time retirement in August 2012.

Can or should you aim for ERE? It really depends on your personality and your priorities. I freely confess that I’m very far from a minimalist and I was never prepared to forgo a really significant component of current consumption to fund a frugal very extended retirement.

As Ben Carlson writes in Some Thoughts on the Extreme Early Retirement Movement, “I have a ton of respect for these people. There are so many people out there today who have a hard time saving any money at all. The fact that these people are willing and able to save enough money to become financially independent so early in their years requires a combination of discipline, hard work and planning that is rare these days.”

But like me, Carlson doesn’t see the ERE lifestyle working for him. He says,” To me, financial independence means not having to stress about money all the time; it means having enough money saved so a one-off expenditure won’t be a huge issue; it means having enough money to pamper myself every once and a while without feeling guilty; it means living life in a way that is rich to me personally.”

What does financial independence mean to you? Are you contemplating extreme early retirement?

Written by Sheryl Smolkin
	Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

By Sheryl Smolkin

Blogging is essentially self-publishing. Because it is so easy to get started, it’s not surprising that there are new blogs popping up on every subject daily. I must admit it’s easier to keep going back to the ones I know and like instead of constantly monitoring some of the newer (or new to me) guys on the block.

But one blog that I must confess I’m becoming addicted to is Millenial Revolution by Kristy Shen and Bryce Leung. The two 30 year olds write about how they got rich and retired to travel the world by not joining what they call “the home ownership cult.” Start with their How we got there series. See my comments on their strategy from the perspective of a semi-retired boomer in Rent vs Buy: A reality check.

But I’m also working my way through a list of the 2016 Top 25 Retirement Bloggers on Personal Income. Many of the blogs on the list are directed at U.S. readers, but much of the commentary on retirement is generic. Here are a few I sampled this week:

In A Wealth of Common Sense Ben Carlson writes about What it takes to retire early. He cites stories from other bloggers who:

• Retired early by using rental income and moving abroad.
• Saved $1 million by choosing to live in a place with a low cost of living to retire in their early 40s.
• Retired in their 30s (Shen and Leung noted above) by avoiding home ownership in an expensive real estate market.

He concludes that to retire really early you have to save lots of money and have very little need for a large annual income in retirement.

Retire by 40 author Joe Udo analyzes the rule of thumb from the early retirement community that suggests you need to accumulate 25x your annual expenses. This benchmark is derived from the 4% withdrawal rate. So if you have 25x your annual expenses, the premise is that you would be able to support your lifestyle by withdrawing 4% from your investment every year. But Udo retired at 38 and four years later he says lifestyle inflation can easily erode retirement savings. So he suggests that extreme early retirees may need a cushion of 30x annual expenses or even more to cover a possible 50 years of retirement.

Mark Miller blogs on retirementrevised. When not to save for retirement may appear to challenge conventional retirement savings orthodoxy, but in fact it makes perfect sense. He says for many people, saving for retirement actually should be fairly low on the financial priority list – well behind the more immediate goals of building a rainy day fund and reducing their consumer debt.

Our next life by Mr. & Ms. ONL asks What Are Your Early Retirement Deal-Breakers? They are not willing to move to a low cost-of-living area they don’t like just to get by or give up a home base entirely and embrace a fully nomadic life. Nevertheless they say, “Life is short, our time here is precious, and even if we have only a short time to climb mountains around the world like we hope to, it will be more time than we would have had if we’d stayed on the usual career treadmill.”

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