If you think back to your childhood, do you remember how you felt when someone would slip you $20? You were over the moon! If you’ve ever been unemployed, you’ve likely experienced a similar rush when finding money tucked into an old drawer, or even loose change between the couch cushions. Yet, at the peak of our working years we can become accustomed to a steady stream of income that by the time we pay for this and that we have spent what we thought we should have saved.
Retirement however, is essentially a very long period of unemployment. And what if all you’ve saved for retirement has made your standard of living so modest that there is little wiggle room to find money for emergency expenses?
Sadly, this is the type of situation in which many might find themselves during retirement. According to a recent study released by the Broadbent Institute, only a small minority (below 20 per cent) of middle-income Canadians retiring without an employer pension plan have saved anywhere near enough for retirement. The study found that the vast majority of families with annual incomes of around $50,000 and less than 10 years till retirement will be hard pressed to save enough in their remaining working years, and may not be able to avoid a significant fall in income. In fact, almost a quarter of Canadians say they are planning on using their homes as their primary source of income once they are out of the workforce, according to a survey from Sun Life Financial.
Part of the challenge comes from a culture that advocates a “spend now, save later” mentality fueled by high debt. In a recent survey by the Federal Reserve Board, 47% of respondents said that in the event of an unexpected emergency requiring an extra $400, they would need to sell something or borrow to come up with the money. Yes that’s right an extra $400 would be difficult to find for working Americans. Which leaves the question ‘what will the situation be for retirees’? When you combine high debt with low savings, what you get is a large swath of the population that leaves little room for emergency expenses during retirement. But ideally, you’ll have saved enough for retirement to ensure a safeguard for any sudden expenses, vacations and maybe some leftover as an inheritance for your loved ones.
Unexpected expenses will always exist, so be aware of your spending habits and be prepared for your future. Very few people will slip you $20 enough times over to cover an unexpected emergency during your retirement and $20 today does not stretch as far as it use to.