It's Your Money  

Up for the 1% challenge?

Would you be willing to forgo a movie night out if the savings could pay your monthly cable bill in retirement?

How about bringing your lunch to work once per week if it meant having an extra $350/month for your entire retirement?

If those kinds of trade-offs sound appealing to you, consider taking the one per cent challenge in 2019.   

A great way to kick off the new year is to commit to putting an extra one per cent of your salary each month into your retirement savings. The effect that this small act can have on your quality of life in retirement can be huge.

Finding that extra one per cent to put away can be as simple as skipping the odd night out, making coffee at home instead of hitting up the Starbucks drive-thru or taking your lunch to work one or two days per week instead of buying lunch every day.

While investment performance is important, the only way to reach your retirement goals is to put money away to begin with.

Your budget might appear to be stretched thin already, but let’s take a look at an example of how my one per cent challenge could make a significant impact for you and how you can make it work.

For my example, I am going to use “John,” who is 30 years old and works as an account manager earning $60,000 a year.

On top of his regular RRSP and TFSA contributions, John has decided to accept the challenge and put away an extra $50 a month (one per cent of his salary), which will be adjusted each year for inflation as we’ll assume he will get raises over time.

If John invests that extra $50 each month into his TFSA and earns an average of eight per cent per year, he will have an extra $88,427 of TFSA money when he reaches age 65.

If John decides to leave the $88,427 in his TFSA and withdraw it over time during his retirement, this money could generate an additional $480 per month of tax-free retirement income.

Here’s the problem:

John finds that at the end of each month after his mortgage, car payment, current investment contributions, bills and living expenses that there is no money left. So where will he find the extra $50 each month to make the contribution?

When you break it down, that’s only $12.50 per week that he would need to save from other expenses. If John buys a $5 Starbucks coffee every day on his way in to the office, he could decide to make coffee at home three times a week and have enough to cover this contribution.

Likewise, if John goes out to lunch with co-workers a few times a week, he could bring a brown bag lunch just once each week and save enough to make the challenge’s goal.

There are a wide range of options for most of us to save $12.50 each week. Most of these savings options seem like a pretty good trade off to have an extra $480 each month to spend in retirement.     

Ultimately, you should be contributing 10-15 per cent of your income to retirement (including any amounts your employer contributes) but you can’t get there overnight.

The key is:

  • start now
  • save regularly
  • increase your contributions over time.

If you feel that you still don’t know where to come up with the extra cash to put away, consider keeping a journal for the next two months of any and every item you spend money on.

You’ll likely be surprised by what you find, how easy it is to make a few small changes and accept the one per cent challenge for yourself.

As you start out a new year, consider adopting my one per cent challenge as one of your new year’s resolutions.

Happy Holidays to you and your families and thanks for reading.                        


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About the Author

Designated as a chartered investment manager and certified financial planner, Brett holds life insurance and investment licenses in B.C., Alberta and Ontario.

In addition to being the owner of Kelowna-based SPEIR Wealth Management Inc., Brett also serves as the vice-chair of the Financial Planning Standards Council of Canada’s board of directors. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations for the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FPSC board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected].

For more information or to see a database of previous columns, visit www.speirwealth.com.

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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