Paying down debt, along with building money management skills, are key steps in the process of getting ready for retirement, says Jay Zigmont, PhD, CFP®, who is the founder of Mississippi-based Childfree Wealth.

Save with SPP was able to connect with him by e-mail recently for his views on these topics.

Do people understand the need to pay down credit cards, lines of credit, loans and other non-house debt before they retire? (Thinking here about the difficulty of retiring WITH debt)

While I recommend being debt free when you retire, it is often one of the more controversial topics.  You should make getting out of debt a priority.  Paying off your consumer debt will most likely give a better tax-free return than investing.  Once your consumer debt (credit cards, loans) are paid off, your goal should be to pay off your house before retiring.  With all of your debts paid off, your retirement expenses can be controlled and should be a lot less.  When you enter retirement, you are on a fixed income, so keeping your expenses low may be the key to success. 

What’s the most important financial planning step that folks can take to turn around their (lack) of money management skills?

Learn how to manage your money.  The only thing I was taught growing up was how to balance a chequebook, which is a complete waste of time now.  You can choose at any time in your life to learn how to manage your money.  You can learn on your own, or by working with a financial planner.  Either way, your goal should be to understand your own money behaviours and how to get the most out of your money. 

Is it ever too late to start saving for retirement – what are your views on the importance of setting aside money for the future?

Saving for retirement is more than just putting money into accounts and investing it.  Paying down your debt is saving for retirement.  Learning how to live on a budget is a skill for retirement.  Your age is not what determines your ability to retire, your net worth and money behaviours are what matters.  No matter where you are in life, you can always learn more and save more. 

What’s the one thing that surprised you the most about people and money?

What surprises me most about money is how people compare to others and try to apply rules of thumb that do not fit them into their life.  For example, I work with Childfree and Permanently Childless people.  Most (if not all) general financial advice assumes that you either have kids or will have kids.  For Childfree people, who don’t have kids and aren’t planning on having kids, these guides just don’t fit well.  The key is not to compare yourself to others or benchmarks, but to compare your progress toward your goals year over year.  Your life and your money are your own, stop comparing against others. 

Childfree Wealth, notes Zigmont, is a Life and Financial Planning Firm based in Mississippi. He is a Fee-Only, Advice-Only, Fiduciary, Certified Financial Planner™, Childfree Wealth Specialist, and author of the book Portraits of Childfree Wealth.  His PhD is in Adult Learning from the University of Connecticut, and he specializes in helping Childfree and Permanently Childless people to learn how to manage their money.  

We thank Jay Zigmont for taking the time to answer our questions.

Join the Wealthcare Revolution – follow SPP on Facebook!

Even if you have zero saved for retirement, these steps will get you started

One of the findings of a recent survey from the Healthcare of Ontario Pension Plan (HOOPP) was that “32 per cent of working Canadians said they have yet to save anything for retirement.”

South of the border, reports GoBankingRates via Yahoo! Finance, the situation is similar, with 23 per cent of Americans having saved nothing for retirement, and “25 per cent of Americans between 45 and 55 years old” not having even started saving.

Like dieting and going to the gym more often, saving for retirement is something we know is good for us but is easy to avoid doing. GoBankingRates offers a few ways to fire up your own personal retirement savings program.

The first step is to start budgeting, the article notes. “When payday comes around, it’s tempting to pay for immediate expenses, such as rent and groceries, and use the rest of that money for spending and splurging. Instead, you should consider budgeting,” the article urges. “By setting aside a little money every month towards retirement, you will be able to enjoy that money in the future,” states Jay Zigmont of Live, Learn Plan in the article.

Next, the article continues, is addressing your debt load.

“Debt is a frustrating thing to have, but the sooner you are able to eliminate it, the more money you will have for saving for retirement, investing and spending,” the article tells us. This is a very valid point. Next time you get your credit card bill, see how much interest you were charged on the balance over the last month. That amount could go to savings if you were able to pay off the card.

To target your debt, the article advises you to first be sure to make at least the minimum payment on all debts. They then advise that you put any extra money you can on the debt with the highest interest rate. Once that one’s gone, add what you were paying on high-interest debt 1 to high-interest debt 2, and repeat until you are debtless.

A third idea in the article is goal-setting for savings.

“Make sure you know why you are saving,” Zigmont states in the article. “What do you want your retirement to look like? What are you willing to give up to get there? What is the dollar number you need to hit to retire? When do you want to do it by?”

If you want, for example, to have $20,000 in savings for 20 years of retirement, a target might be $400,000. For simplicity, we are not talking about interest rates and investment returns in this example, but both can help you get there.

Other ideas from GoBankingRate include investing your savings, rather than putting it all in a savings account. “Follow the general rule of only investing in things you understand,” Zigmont states in the article. “Take the time to learn what your options are and be sure to understand both what you are investing in.” In Canada, your choices include workplace pension plans, the Saskatchewan Pension Plan, registered retirement savings plans (RRSPs), Tax Free Savings Accounts (TFSAs) and plain old cash trading accounts. Be sure you know the limits and rules for each type of investment vehicle.

The final advice in the article is to “take ownership” of retirement. “The key to retirement is making it your own,” the article concludes. Do you want to fully retire, or move to part-time work? Having an idea of what your own retirement will be like will help guide your savings plan, the article concludes.

Over many years of reviewing books for Save with SPP, there was one piece of advice that really stood out, and actually worked for us when money was tight. That idea was to put aside five per cent off your pay for savings right off the top, and then live on the rest.

A barrier to savings is the feeling that you won’t have anything left over after bills and groceries. But if you take five per cent off the top, and put it somewhere where you can’t get at it to spend, you’ll be amazed how quickly the savings start to add up, and how little you miss the five per cent (eventually).

A safe and secure cookie jar for your newfound savings is available through SPP.

With SPP, you can stash away up to $7,000 per year in a locked-in, voluntary defined contribution plan. “Locked-in” means you can’t raid your savings for non-retirement expenses; you can only access the money once you reach retirement age. And during that run up, your money will be invested professionally and at a low cost. SPP is a sensible savings option available to any Canadian with RRSP room; check them out today!

Join the Wealthcare Revolution – follow SPP on Facebook!