Winning the Marathon
While I'm still in my twenties, I must start planning to retire. You think I'm kidding.

At 23, Bradley Roulston realized earlier than many that, "there were two lifestyles to fall into when you got older"-financial stability or living paycheque to paycheque. He decided that "I would make a habit of doing the little things that would put me in the better position later." At 26, he now works for LMS Prolink and has the distinction of being the youngest Certified Financial Planner licensee in Canada but he and other CFP licensees agree that, whoever you are, planning for retirement is more important now than ever.

In this new era of contract work and temping, the company pension plan is as quaint an idea as bottles of milk delivered to your door. Meanwhile, our government has finally realized that the demographic spike we call the Baby Boom generation is going to seriously max out its Canada Pension Plan credit. "I think that you are more likely to see a UFO then the CPP," says Roulston.

Fernando Almeida is a Toronto-based financial planner at Regal Capital Planners Ltd. and advises that "if you don't begin setting aside at least 10% of your wages for savings, you will force yourself to continue working for most of your life trying to 'catch up' or 'get ahead'." The nest egg we start building early will "decide if we will retire in dignity and comfort or to a bare existence," he says, and beginning a Registered Retirement Savings Plan is crucial. "An RRSP allows Canadians to invest for their retirement and have all income earned on the investments held within the RRSP tax sheltered," he explains. "Also, the government allows you to deduct an investment in an RRSP against your regular income from work, thus reducing your income tax payable. This makes an RRSP a win-win proposition."

But the notion of someone in their twenties paying RRSP contributions in addition to high rents, student loans, etc. seems like a lose-lose proposition. Wouldn't it make more sense to reduce your debt first and start saving when you can better afford to? "I would not sacrifice my RRSP contributions to pay off student debt," declares Tim Cestnick, tax columnist for the Globe & Mail's Report on Business, "Pay off those loans as you're required to, but no faster." Cestnick says student loans aren't necessarily "bad debt," noting that "the interest costs on student loan debt are eligible for a tax credit, which makes these loans better than, say, credit card debt" which is apparently Evil Itself. "Certainly you want to eliminate non-deductible debts as soon as possible," Roulston agrees, adding that "Many people opt for investing in their RSPs and using the tax-refund to put towards their debts."

Not everyone, though. A 1996 Environics survey for Royal Trust showed that a mere 34 per cent of the people polled even intended to start a retirement plan and Statistics Canada reports that, in 1998, the average RRSP contributor was 42 years old. That's way too late, says Almeida: "Instead of looking at putting money aside for your retirement as a savings/investment, think of it as an expense-one that must get paid first, before all other expenses are paid. The most important thing to remember is that the earlier you start, the less money you need to begin with. The more time you have, the more your investment will compound and grow. Therefore it is crucial to begin as soon as possible; otherwise you may be throwing millions away."

Millions? I decide to test this on myself. Let's say I start investing now, at the age of 29. That's 36 years until I retire at 65. Let's say I make monthly payments of $50 (not too difficult) and manage a 7% return on those investments. By the time I retire in 2036, I will have earned $97,749 -probably enough money by then for a Toronto bachelor apartment, in which I survive for only two years, eating cat food. Oh dear.

But what if I'd started at the age of 20? Well, right there, I'd have nearly doubled my take at retirement time to $190,736. And what if I'd also invested smarter for a better return of, say, 10%? That 3% increase would increase my nest egg to $528,493. And what if the 20-year-old me had also managed to pay not $50 a month but $100? I'd hit the age of 65 with a cool $1,056,986 and retire a millionaire.

"Idiot!" I cry, pounding my 29-year-old forehead. But I shouldn't be too hard on myself, for at least I've started. If I'd waited till I'm 42 to start the plan I first described, then I would have to make monthly payments of $140-nearly three times as much-just to approach that paltry $97,749! "It's easier to set aside 7% of your annual income today than it will be to set aside, say, 20% of your annual income if you wait until you're 45 to start saving," says Cestnick, who-by the way-wrote his first bestselling book, "Winning the Tax Game", at the age of 29. Oh, the irony.

"While us younger guys don't have as much money," Roulston says, "we do have considerably more time." He compares retirement day to a marathon race: "From the beginning, you got up and jogged. Not a lot-maybe 4 or 5 km each morning-and as the weeks went on, you were able to extend your jogs longer and, over time, you've clocked in a lot of miles. The day of the marathon, you're in good shape."

But what's the best route to jog? Where's the best place to put those savings? Cestnick says that "mutual funds are not the only option, but make the most sense for investors with small portfolios" because they "offer professional diversification at a reasonable cost." "A mutual fund," explains Almeida, "pools all the money from investors and buys shares in companies with strong growth prospects…you share in the profits or dividends of those companies, and any capital gains realized." "Historically," adds Roulston, "equities have out-performed interest vehicles in any long-term period. As a young person, I have a long time before I need the money and I can tolerate ups and downs in the market."

Tara O'Hare, Associate Financial Advisor at the Rogers Group Financial Advisors Ltd. in Vancouver, says that "it's hard to have a well diversified portfolio of individually held stocks if you are just starting out." She agrees that mutual funds are "a great alternative" and offers a couple of simple RRSP tax-planning strategies: first, RRSP contributions, whenever possible, "should be made early in the year. Earnings will accumulate on a tax-deferred basis sooner and the funds will compound for a longer period of time." Second, "contribute to an RRSP on a current basis, but 'pass-up' making the actual deduction claim until a later year," presumably one in which you've got a higher tax rate. "This way," says O'Hare, "the funds can start to grow tax free as soon as they are contributed even if you do not need the deduction or are not going to use it for a few years."

Cestnick warns that "if you're looking to make a quick buck by investing in a hot tip, or a technology company with no history of earnings, then you're gambling." He suggests "taking a disciplined approach to investing and buying good companies with solid earnings histories, or mutual funds that invest in these." As with most things, research is the first and most important step and, for the beginner, books are a great place to start. Roulston suggests 'The Millionaire Next Door' for "demonstrating that saving is more important than earning," while Cheswick recommends 'The Wealthy Barber' by David Chilton because "it's easy to read and covers the basics well. It's a must for those in their twenties who are not financial gurus."

While all of these financial planners were happy to make suggestions, they stress that any advice from an article or book is no substitute for sitting down with someone who truly understands your individual financial picture. But again, if you do decide to work with a financial planner, how do you choose? London Free Press business reporter Pat Currie quoted one entrepreneur's motto, "Never deal with a stockbroker who doesn't have grey hair," which makes Roulston laugh. "I wonder if this person was either born with grey hair, switched into financial planning in their 50's or is frightened about our up-and-coming generation," he says. Cestnick agrees that this is "crazy advice" but suggests that, when choosing a financial planner, "make sure they are not simply transaction oriented...they should care about more than simply selling you stocks and mutual funds. They should care about your whole financial picture."

"A test of this," offers Roulston, "is to ask about their designations and their strategy for continued development. Many good CFP licensees have only been in the business for a few years, but if they are dedicated to continued learning, we will continue to grow and be there for you for another forty years." After all, it's a long race and, like one's physical fitness, Almeida emphasizes that people should never "lose sight of their financial health." The benefits are worth it, Roulston enthuses, "there's something liberating about knowing that you are financially okay."