Creating A Retirement Plan

The first step to any successful retirement is... to have a plan! Yes, having a plan may seem obvious, but a majority of North Americans have no clue when they want to retire or how they plan to finance it. Some people even plan on winning the lottery to finance their retirement. All I can say to that is good luck! So what's my plan?

I started saving for my retirement from an early age. Ever since I can remember getting a pay cheque as a teenager, each month $100 was deducted from my account and was invested in mutual funds. I had no idea what mutual fund it was, but I trusted our family friend who signed me up for it and never thought twice about it. I didn't have a solid plan back, but at least I started saving for it. I work with a lot of people who are 20 - 27 years old and they have absolutely nothing saved for retirement and the more I talk to them about retirement savings, the more they ignore me. To each their own.

Now that I'm married and in my thirties, I have a more detailed plan of when I'd like to retire and how I'm going finance it. Right now, the age I'd like to retire at would be 50. Since my wife does not share my financial savvy, I've pushed my official retirement age back to a more realistic number of 55. That gives me 23 years to pay off my mortgage, possibly raise two children and save up enough money to be financially free. Now that I have an official time line, my goals that I must accomplish along the way can be carefully planned for and more easily executed with a rough plan.

Goal No. 1- Pay off the mortgage

My wife and I just bought a house last December. We both have good jobs so we moved from our condo to a nice two story in a very nice and quiet neighborhood in Edmonton. We basically doubled our mortgage and now have a balance of roughly $300,000. For now, I put $1000 in an account each month that is strictly for emergencies only (Not the BOGO at the shoe store like my wife suggests). Every 6 months I transfer the funds from the emergency account and make a payment on the principle of our mortgage. How do I keep from spending that money on a motor sports or tropical vacations? Simple! I think about the interest that a $300,000 mortgage generates at these low interest rates and then I imagine when they climb above 8% and my mortgage payment doubles. For me that's all it takes. By making these extra payments and piling on any extra money that may surface, I plan to have the mortgage paid off in 13 years. Am I crazy; yes. Can it be done; yes.

Goal No. 2- Raise Two Children

Even though we don't have kids yet, my wife and I plan on raising two children. Why only two kids? One parent per child seems like an excellent ratio for family fun and supervision purposes. Yes kids take a lot of money to raise, but I'm pretty sure they don't cost as much as everyone says. My kids are not going to wear major labels until they pay for them with their own money. I've already devised a plan to pay for post secondary education while saving for my own retirement using a Tax Free Trading Account. Every year I purchase $5000 worth of dividend stock. Each year I re-invest the dividends to purchase even more shares. In 20 years I will have invested over 100,000 in my TFSA and depending on dividend growth, my return on my investment should easily be above 10%. If $14,000 tax free a year isn't enough to help my child out for secondary education, then they are going to take up a trade. When the kids are done secondary education, then the dividends are reinvested until I retire a few years later.

Goal No. 3- Saving For Retirement

When it comes to saving for retirement, I basically save 15% of my yearly earnings. Through my work they have an RRSP matching program that will match up to $1.50 an hour. They also have a share purchasing program as well so I can invest up to 5% of my yearly earnings in my company's stock and they will match what I contribute. We also contribute $10,000 a year to our TFSA and grow our nest egg tax free.

I used to invest my money in mutual funds just like everyone else, but I found a better vehicle that is a proven strategy to make my nest egg grow and keep growing even during retirement. I invest my RRSP and TFSA money in Canadian dividend paying companies which regularly increase their dividends. My total dividend income for 2010 was $2696.00 and my yield for dividends was a guaranteed 4.78%. My total dividend income has now increased with dividend increases and additional purchased shares. My 2011 dividend income is now $3432.00 and my yield is 5.04%. Not bad for just starting out. I could only imagine how big my nest egg would be if I started this strategy from the beginning.

Now of course no matter how much you plan for it, Life Happens! Things always change and my strategy can be stalled or re-directed, but at least it's here for a rough guide and example for others. 

Do you have a plan for your retirement?