I forgot to save for retirement

Like many of us, Cindy Oxenbury was far too busy in her twenties and thirties to think much about saving for retirement. Between work, marriage, becoming a mother, then facing divorce, she had contributed to RRSPs here and there, but was as far away from having a real strategy as she was from her 65th birthday. And when she decided to pursue her MBA in 2000, the soon-to-be-single-again Oxenbury dipped into what little she had saved to pay for tuition and University of British Columbia student housing.

Although confident her management degree would help her build a comfortable life for herself and her now teenage son, those first months on her own were tough. “I could barely get through a day, never mind think about the future at that point,” Oxenbury recalls.

Now 43 and in a well-paying senior management job in Vancouver, Oxenbury would like her golden years to arrive sooner than later. So with the help of a financial advisor, she has seriously ramped up contributions to both her employer’s pension plan and her individual RRSP. But can she save enough to afford the retirement she wants, and still have enough left over to enjoy her life today?

The savings hurdles that women face

It’s among the toughest financial challenges facing Canadian women. Although we have more money in retirement than ever before, Statistics Canada reports that women aged 65 to 69 are living on just 61 cents for every dollar of retirement income their male counterparts enjoy. Why the disparity? It certainly isn’t that men are better savers than women, but that women often have fewer opportunities to build a retirement nest egg. We’re more likely to take time out of the workforce to raise children, and more likely to work part-time or in other jobs that don’t come with an employer pension plan. Also, we tend to end our careers earlier — sometimes to accompany an older partner into retirement — and live longer, so our savings need to see us through more years than a man’s.

Especially for single women, finding money to sock away at the end of every month can seem like mission impossible. Then come the 2 a.m. cold sweats: How in the world can I come up with $1 million by the time I turn 65?

Despite what certain advertising campaigns would have you believe, you don’t need anywhere near $1 million to retire comfortably, says Patricia Lovett-Reid, 49, the a senior vice-president at TD Waterhouse Canada Inc. and co-author of Live Well, Retire Well: Strategies for a Rich Life and a Richer Retirement. People tend to live a similar lifestyle in retirement as they did before, she says. So while a lifelong landlubber may fantasize about sailing around the world in her own 40-foot yacht, the reality is that even if money weren’t an object, the closest she might come to fulfilling that fantasy is a commercial cruise around the Caribbean — a much less costly endeavour. The moral of this story: If you aren’t living large now, don’t knock yourself out planning for a lavish retirement.

Another fallacy is that if you didn’t start saving for retirement in your twenties or thirties, making up for lost time will cost all of your spare cash. Au contraire! Lovett-Reid lays out this scenario: “Let’s say you’re 40 years old and you’re earning $75,000 a year. You want to retire at 65. If you save just 10 per cent of your [before-tax] income — $7,500 a year — at a reasonable rate of return, 6.6 per cent, for 25 years, you’ll have $448,000. That’s a tidy nest egg.”

Plan ahead to live comfortably

And that money will continue to grow even after you’ve retired, as long as you take the portion you don’t immediately need for living expenses and keep it inside safer, income-earning investments such as bonds and GICs. And don’t forget: In addition to the money you draw from your own retirement savings and any employer pension you receive, you’ll be entitled to a healthy amount — as much as $16,000 a year right now — in Canada Pension Plan and Old Age Security benefits.

Still worried you won’t be able to save enough? Instead of quitting work cold turkey, consider scaling back your hours or switching to self-employment. The income will supplement your retirement savings, allowing you to retire sooner or live more luxuriously than you might otherwise. And, as Lovett-Reid points out, many boomers are choosing to work part-time past age 60 or 65 simply because they enjoy what they do. “You’d have to fill 4,000 to 5,000 hours a year if all of a sudden you were to stop cold,” she says. “That’s why for many, part-time employment or turning a hobby into a revenue-generating exercise makes all kinds of sense.”

Between contributions to her employer’s pension plan and her own RRSP, Oxenbury is putting away $1,000 a month, with an eye to retiring early, at 60. “It doesn’t sound like that much, but it really does add up,” she says. Best of all, this amount still allows her enough spare cash to indulge her passion for nice shoes and restaurant meals, and this past summer she was able to treat her 14-year-old son to his first solo trip to England for a visit with his cousins.

You’ve procrastinated this long — so chances are that getting on the right investment track, and staying on it, will require more than your best intentions. For Oxenbury, hooking up in 2006 with Katrine Sperling, her 45-year-old Edward Jones financial advisor in Vancouver, made all the difference. “Over the years I had contributed money here and there,” Oxenbury recalls. “She helped me consolidate them” into an appropriate mix of safer income-earning investments, and slightly riskier but potentially more profitable equity funds. While the average Canadian balanced mutual fund (a mix of income and equity investments) returned 8.9 per cent in 2006, since then Oxenbury’s RRSP has recorded a healthy annualized return just north of 13 per cent. Her advisor was the first to point out that Oxenbury won’t do that well every year; like any good financial planner, Sperling keeps her clients’ aspirations rooted in the realm of what’s truly achievable — and sometimes she has to practise tough love in counselling a client to scale back her retirement dreams because she’ll never be able to bankroll that lifestyle.

“There’s no point in me telling you that you need to put away $1,000 a month if that’s absolutely unrealistic for your budget,” says Sperling. “So then you have to come to an agreement about what is realistic. Could you put away $300 a month? If that’s much more maintainable, start with that, and then work with somebody who’s going to remind you that, okay, if we want to increase these goals, we need to be nudging up that monthly contribution by 10 per cent each time we chat, or quarterly, or something like that.”

The ins and outs of financial advice

Reliable financial advice doesn’t have to cost a lot. Many advisors don’t charge their clients a fee; instead, they’re paid commissions for the mutual funds they sell. Yes, there is the potential for an unsavoury character to load you up with mutual funds not because they’re right for you, but because they pay him well — so it is important to shop around for a planner you trust and feel comfortable with. Ask friends and family for recommendations, or find a short list of candidates, along with tips on how to grill them, through the profession’s national associations. For accredited advisors or planners in your area, try Advocis, The Financial Advisors Association of Canada or Financial Planners Standards Council.

Get a roof over your head

If you have a mortgage, chances are your retirement is already more secure than you think. Even if you’re still years away from owning it outright, your home is probably your largest asset — and, as Lovett-Reid points out, it’s one of the few you can sell without having to pay tax on the increase in value. The profit is 100 per cent yours to pocket or to pay for retirement living expenses. And in case you decide against downsizing, your home can still help you pump up your cash flow, by backing a home equity line of credit or reverse mortgage — a loan geared to seniors that doesn’t have to be repaid as long as you live in your home.

Following her divorce in 2001, Oxenbury bought a house in New Westminster, B.C. — a move Lovett-Reid believes more single women in their forties, fifties and even sixties should consider. Being prepared for retirement, she says, “doesn’t only mean saving inside an RSP. It’s about building up your net worth and your balance sheet. And I think real estate is a great place to start.”

Between the skyrocketing market value of her home, and her modestly swelling investment portfolio, the once-struggling Oxenbury feels pretty secure these days. “This year I actually achieved one of the savings goals I set for myself, and it was so cool,” she recalls. “Really, really emotional.

“I think I’m going to be all right.”

This article originally appeared in the February 2008 issue of More