A plan for 40-year-old retirement virgins

Forty may be the new 30, but if you’re around the same age as Gwyneth Paltrow and Leo DiCaprio and haven’t started saving for retirement yet, now’s the time to start.

For those in their 40s, 50s and beyond, a financial plan for the so-called golden years will look a lot different than it would for college grads. Money experts say older folks needn’t despair; they just need to get really serious.

“If you haven’t done anything it’s not too late, but it’s really time to buckle down,” says Robert Stammers, CFA Institute’s director of investor education. “It’s really about forging a fiscal discipline and understanding where your money goes.”

Track spending

Knowing where your hard-earned cash is ending up day-to-day is the first step to avoid being cash poor during life’s later stages.

That means tracking spending, either by writing expenses down in a journal or using online tools or apps to enter every single transaction, at least for a small period of time so that you get a sense of what’s happening with your income. That’s the easiest way to get a see where you can start cutting costs. Think needs versus wants.

Automate savings

And while it’s common sense to save before you spend, that can be easier said than done. Use automatic withdrawals to put a portion of your income into a savings or investment account, Stammers suggests; even better if funds in that savings account are hard to access and not tied to your debit card. “You don’t want to be carrying around your savings in your back pocket,” Stammers says.

Team goals

Prepping for retirement at a later age means setting clear goals, says Lantzville, B.C.-based retirement and investment planner George Christison, founder of InvestingForMe. But to make those goals a reality, it’s crucial for those with a partner to make sure everybody’s on the same page. Call retirement planning a team sport.

“They [your partner] must be part of the goal setting and the day-to-day efforts to reach those goals,” Christison says. “There’s not much point when one person takes a bagged lunch while the other is buying Starbucks coffee and dining out every day, or you dream about a stay-at-home retirement while they want to travel the world. It’s kind of like rowing a boat with only one oar.”

Pay down debt and invest

Focus on paying down your debt, and that means everything from credit cards and car loans to lines of credit and your mortgage, Christison recommends.

In fact, he says it’s better to pay down your mortgage rather than put any leftover money into a Registered Retirement Savings Plan (RRSP). (His site has a mortgage vs RRSP calculator for people to run the numbers and see for themselves.)

Christison is also in favour of Canadians prioritizing Tax Free Savings Accounts (TFSAs) over RRSPs for the simple reason that people don’t typically reinvest their tax refund.

“Most people see their income tax refund as a holiday or a new flat-screen TV,” he says. “Not re-investing them kills the major benefit of RRSP contributions.”

That’s not to say 40-year-old retirement virgins shouldn’t be doing any investing. It just needs to be done carefully. In other words, don’t go super aggressive in your portfolio hoping you’ll get a big payout, and work within your own comfort level with risk.

“Investment management is about increasing the probability of reaching your financial goals and putting together the best portfolio to reach those goals without taking undue risk,” Stammers says. “If you’re in your 40s, 50s, or older, you can’t bank on the market to bail you out.”

Some people opt for “Core Plus” portfolios, Stammers notes, in which the majority of the holdings have strong prospects while a portion is used for higher-risk investments.

Once you’ve got an investment plan in place and your planned savings still don’t add up to what you need to reach your goals, then some tough decisions might have to be made, whether it’s working during retirement or downsizing, Stammers says.

Other tips?

Set up an emergency fund of three to six months’ worth of expenditures so that if and when something unexpected comes up, you don’t have to dip into retirement savings to cover the cost, Stammers says.

Maximize benefits such as RESP savings and employer RRSP matching programs, Christison says.

Explore opportunities to make more money. “Go for that promotion or bonus, pick up that extra shift, explore alternative career options…look at making your hobby a revenue generator,” Christison says. “The whole point of decreasing your expenses and increasing your income is to grow your free cash flow, which then can be used to grow your net worth.”

And even when you’re planning for something 10 or 20 years away, establish shorter-term targets too.

“Create a one-, three-, and five-year plan to guide your day-to-day spending, income, saving, and investing decisions,” Christison says.