The Not So Free 55

Couples are starting families later these days - is early retirement still possible?

It can be. Rick and Kathy are in their early 50s and have just started to get serious about retirement. They each have adult children from their first marriages but also have a daughter, Becky, who is 13. Here's their plan:

Work in retirement

Kathy is planning to incorporate work into retirement by starting a small business in addition to her full-time job.

She wants to work for herself doing something she loves and is realistic about its purpose to supplement her income - not make her millions.

A growing trend among Canadians is incorporating work into their retirement. It provides a chance to maintain social networks and keep some of the healthy benefits that work provides on a day-to-day basis.

Choose RRSPs over RESPs

Baby boomers are often torn between saving for retirement and putting money away for their children's university education. Even though Rick and Kathy are behind on their retirement savings, they've been considering putting money into a Registered Education Savings Plan (RESP) for Becky because of the Canada Education Savings Grant (CESG).

Consider making retirement savings your priority. If you don't have enough to cover tuition bills, your children can apply for financial aid or student loans - you won't have those options when you retire. The CESG gives you 20% for every dollar you put into an RESP. But an RRSP would give Rick and Kathy a minimum 36% tax deduction. Investing in an RRSP makes better financial sense.

Watch the spending

The reality is, a lot of Canadians retire happily without millions in their portfolios.

The key is to understand your spending habits and lifestyle needs. Calculate how much income you'll require for retirement by analyzing how much income you need today. Keep a list of your spending for a month, then determine where you can make cuts and redirect your money to your retirement nest egg.

Rick and Kathy discovered that they were spending too much on eating out and expensive holidays. They're saving an extra $300 a month just by eating at home more often, bringing lunches to work and travelling modestly.

Save regularly

When Rick and Kathy started getting serious about retirement they were very sceptical about being able to save more money. Like most Canadians, they were spending first and saving what they had left.

The most difficult part of saving regularly is getting started. Once you start a monthly withdrawal from your bank account, you have to adjust accordingly.

Rick and Kathy were pleasantly surprised at their ability to manage the savings month to month: "If the price of gas goes up, we don't like it but we adjust. If food prices at the grocery store go up, we don't like it but we have to eat ... The monthly RRSP contribution is just like that, except that we are paying ourselves first instead of everyone else. You often don't miss what you don't see."

Don't be overly conservative

Another big challenge for Rick and Kathy was to invest aggressively enough to overcome a late start, without seriously putting their financial future in jeopardy.

With GIC rates at historical lows, their retirement projections failed miserably. They needed to earn a higher rate of return without a lot of risk.

The solution: they incorporated part of their retirement funds into stocks -which over the long term, have historically outpaced other investments- and maintained a diversified portfolio.

As Rick and Kathy get closer to retirement age, they should adjust the allocation of their assets.

Take one step at a time

Rick and Kathy have a lot on their plate: full-time jobs, an active daughter, family obligations and aging parents who need more care and attention.

They're not unique. Most of us share the same struggles to balance the complexities of life.

But don't be overwhelmed by the big picture - take one step at a time and a comfortable retirement should be within reach.

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Jim Yih is author of Mutual Fundamentals and Seven Strategies to Guarantee Your Investments. He is the founder of CORE Financial Advisors and Account Representative of Manulife Securities International Ltd. Commissions. Jim can be reached through his Web sites Wealthweb.ca, Retirehappy.ca, COREFinancial.ca and JimYih.com.