The main lesson you should teach your teens is how to find a balance between current and future needs. In other words, you want them to understand that it’s fine to spend your allowance on the iPod you want now, as long as you also put money aside for university later. Every teen should have a savings account and be encouraged to save some of his or her allowance and summer job earnings every week — say 10% to 20%. A chequing account and a debit card should follow by age 18.

Perhaps most importantly, ask your teen to take part in your family’s big financial decisions. “The lines of communication should be kept open,” says Barbara Garbens, a fee-for-service planner in Toronto. That means that if you expect your teens to pay for part of their education, you need to make that clear early and help them plan. You should also realize that they are watching you closely. If you are open and honest about how you spend and save your own money, your teen has a better chance of learning from your example.

Top financial lessons from my teens
by Kaitlin D’Silva
I’m now 18 and I’ve just finished first year at the University of Western Ontario, but I remember when I was in Grade 8 and I desperately wanted a laptop computer.

I saved every penny of my gift money but I knew that it probably wouldn’t be enough. So I made a proposition to my parents. If I paid for half of the computer (which would cost me $700), would they be willing to pay for the other half instead of getting me other gifts for the next year or so?

They liked the idea. So I took on odd jobs, babysitting and raking leaves for the neighbours to earn money faster. Saving that $700 was hard work, and it took me over a year to accomplish, but I still remember how proud I felt when my dad took me out to Best Buy to pick out my new laptop.

There were also times when I learned lessons the hard way. I loaned money to friends and never saw a penny of it again. The fact that other people may not share my values about money was an eye-opener. Now, if I lend money to friends, I try to keep it to a minimum so they won’t have a hard time paying me back. And I have no qualms about reminding them that they owe me the money if they seem to have forgotten about it.

Spend less than you earn
If you can master this simple rule in your 20s, everything else will come easily. “The 20s are all about developing good habits around saving, spending and debt,” says Warren MacKenzie, president of Weigh House Investor Services in Toronto, a firm that specializes in fee-only financial planning. “The earlier you do it, the quicker you’ll get richer.”

Start by trying to get good value for your money. Evaluate every purchase and make sure that spending the money on that couch or big-screen TV is really worth the expense. “If you don’t waste the money you spend, then the savings will take care of themselves,” says Malcolm Hamilton, an actuary at Mercer Human Resource Consulting in Toronto. “If you have zero savings at the end of the year but you can say you got great value and didn’t increase your debt load, then that’s okay. Things will work out.”

Invest in yourself
There is one area where you should spend freely, and that’s your education. Yes, tuition looks impossibly expensive now, but it’s an investment that will pay dividends for the rest of your life. “If you see credentials and skills that you can acquire that will better position you for future earnings, do it — even if it means going into debt,” says Hamilton. “It will pay off exponentially in your 30s, 40s and 50s with increased salaries and good raises.”

Avoid the debt trap
If you have only one financial goal in your 20s, it should be to leave this decade with no debt beyond perhaps a few lingering student loans. To succeed in taming debt, you need to keep it simple. “Pay off your highest interest rate debt first,” advises Mary Prime, a fee-for-service planner in Toronto. “And pay off credit card balances every month. If you can’t do that, then don’t buy on the cards. It’s as simple as that.”

Even student loans should be paid off as quickly as possible. “Don’t let them drag on forever,” says Prime. “Have a schedule and a goal on how soon you will pay them off. Aim for a five- to seven-year goal to have them paid off completely. Anything more than that will interfere with your financial goals of starting a family or owning a home when you enter your 30s.”

Get smart
No one cares more about your finances than you. So become financially aware. Now’s the time to learn both some book smarts and some street smarts.

For book smarts, we recommend reading The Wealthy Barber by David Chilton, The Only Investing Guide You’ll Ever Need by Andrew Tobias, and How to Pay Less and Save More for Yourself  by Rob Carrick. You should also do some research into your particular credit cards and bank accounts to see what fees you’re paying and whether there are better options out there.

To gain some street smarts, you might want to do a bit of experimenting in the markets. Are you an aggressive investor? Risk-averse? Try a few approaches to investing to find out. You may find that you’re more comfortable with mutual funds to start, but feel free to dabble in index funds and stock picking to see what works for you. It’s better to find out now, when the amounts you invest are small, and you have plenty of time to recover from those inevitable mistakes.

The top financial lessons from our 20s — Rishi and Fion Madan

Fion and I met at the University of Toronto where I was studying computer science and she was doing an MBA. All through our 20s we lived below our means by sharing apartments with several roommates. I chose a co-op program that allowed me to earn several thousand dollars one year, while Fion made sure to apply for any bursaries and scholarships that she qualified for. We tried not to carry any debt unless absolutely necessary: we graduated from university with just $15,000 in debt between us.

After graduating, we set ourselves the goal of paying off all of our debt as quickly as possible. We both took on part-time jobs along with our full-time jobs and used any extra money after living expenses to pay down our debt. Although it was expensive, Fion was glad she decided to get an MBA. We can’t believe the difference it makes in her earnings.

Maybe the best thing we did in our 20s was to keep reading and educating ourselves about money. We’ve both read Rich Dad, Poor Dad by Robert Kiyosaki and Sharon Lechter, and The Wealthy Barber by David Chilton. We also hung around friends who liked to save, invest and live within their means like we did. It made all the difference.

Now we’re in our 30s, and we feel confident about our finances. We both have jobs we love — Fion is a web developer and I’m a computer systems analyst. The amazing thing is that between us we make more than we ever dreamed we would — close to $300,000 a year. We live in a condominium we bought in 2006 and plan to move to a bigger home and start a family in the next year or two. The higher education and good savings habits have really paid off.

Embrace good debt
Given that your 30s are expensive years, you likely won’t be able to avoid debt entirely — the trick is to manage it wisely. That means knowing the difference between good and bad debt and feeling comfortable with the overall level of debt you take on.

Bad debt means borrowing to buy consumable items, especially those whose initial sheen quickly wears off. It’s borrowing to buy a car you can’t really afford, or carrying a balance on a high-rate credit card. Good debt, on the other hand, helps you build your net worth. It’s used to buy investments that will increase in value over the long term, such as a home or blue-chip stocks.

Pay down your mortgage
Buying a house often means a forced savings plan that helps you build up equity, which is great thing, as long as you pay off your mortgage quickly. Paying down your balance fast is especially important now, as mortgage rates are starting to inch up, so even if you’re locked in, when you renew, your monthly payments could jump. Some strategies to consider include opting for a shorter amortization (25 years, say, instead of 30 years), doubling up your mortgage payments, putting an extra 10% down on the principal of the mortgage every year, or getting a good mortgage broker to negotiate a better rate.

What about my RRSP?
If you find your mortgage is devouring so much of your income you don’t have much left for RRSPs, don’t worry. You can wait a bit longer before you start saving in earnest. “I’m always asked whether paying down the mortgage or saving for retirement in an RRSP is a better financial strategy for your 30s if you own a home,” says Marc Lamontagne, a fee-for-service financial planner with Ryan Lamontagne Inc. in Ottawa. “My answer is to ask yourself what motivates you. If it’s getting rid of debt, then pay down your mortgage as quickly as possible. If you’re keen on having some retirement savings in the bank, then contribute a portion of your salary to RRSPs and use the tax rebate to put towards your mortgage.”

Invest in your kids
If you recently had kids, it may be time to start a registered education savings plan (RESP) to help pay for their education. We recommend setting up an RESP account at your bank’s discount brokerage, and then buying low-cost exchange-traded funds or index mutual funds to build an RESP Couch Potato portfolio. As long as your portfolio is in an RESP account, for every dollar you contribute (up to $2,500 a year per child), the government gives you an immediate 20% top up.

Protect yourself from job loss
Tough as it is, you should try to build up a cash cushion to live on should you find yourself out of work. Three to six months worth of living expenses in cash, GICs or money market funds is ideal. Failing that, you may want to have an unused line of credit lined up for emergencies — it’s much easier to get approved while you’re still employed.

It’s also a good idea to keep upgrading your skills while you’re working. Part-time courses and certifications show that you’re actively  investing in your career. “Because you have a university education doesn’t mean learning is over,” says Al Feth, a fee-for-service adviser in Waterloo, Ont. “You’ll be working for several employers over your lifetime. It’s up to you to make sure you have the skills to be employable at all times.”

If you are laid off, don’t be afraid to approach former co-workers and associates for help. Keep in touch with valuable people at your last job, and if you can, convince your manager or supervisor to write a letter of recommendation before you leave. With a positive attitude and a bit of help from your friends, you’ll make much faster progress toward finding a new job.

The top financial lessons from our 30s — Andrew and Penny Gumley

The best thing Penny and I did in our 30s was to always keep a budget. In the early years of our marriage we budgeted $30 a day for food, transportation and incidentals and we made sure to live within our means. That allowed us to build our savings for a substantial down payment on our first home 11 years ago — that, as well as an automated savings plan that saw us deposit a set amount of money to our “savings for a house” account every month.

Our first home was a $175,000 townhouse in Vancouver and after we bought it, we used every strategy we could to pay it off as quickly as possible. As our salaries increased, we doubled up our monthly payments and put lump sums of cash down on the principal as often as we could. Then, when we moved east seven years ago to be closer to family, the equity in our Vancouver home allowed us to make a substantial down payment on our current home in Ottawa. We paid that home off completely last year when I turned 40.

Paying off our mortgage has given us options now. We have three kids — two seven-year-old twins and a newborn — but we know we’re in good enough financial shape that Penny can stay home with the kids for a few years if she wants to. Or, we may decide to both continue working so that we can save for a substantial down payment on a second property in British Columbia — a place we’d eventually like to retire to.

Crush your debt
It’s at this point that you’ll probably want to really start focusing on paying off your mortgage and any other debt you may have. If you’ve struggled throughout your 20s and 30s, then you have to really make your 40s count. “If you do nothing else, try to reach age 50 debt-free,” says Jim Otar, a fee-for-service adviser in Thornhill, Ont. “You need those 10 or 15 years before retirement to really boost your savings.”

Resist the monster home
Now that you have a larger income, you could qualify for a larger mortgage — but try to fight the urge. Yes, the housing market has done amazingly well over the past 15 years, but you don’t want to count on a repeat performance over the next 15 years to fund your retirement. So try to focus on paying off your existing mortgage, rather than trading up. “A modest home with a smaller mortgage allows you to keep your flexibility should one of you lose your job or become ill, forcing you to live on less money,” says Malcolm Hamilton, an actuary with Mercer Human Resource Consulting in Toronto. “I know people say they’ll downsize, but that’s very hard for most people to do, and not a good financial strategy.”

Hire a financial adviser
Many find that their savings finally break the $100,000 point in their 40s, so it’s time to get serious about how you invest. If you don’t have the time or interest to manage your money yourself, your late 40s or early 50s may be a good time to consider hiring an adviser. Your adviser can help you set your retirement goals and draw up a step-by-step plan to get there. He or she can also help you set up an investment portfolio using low-cost mutual funds, exchange-traded funds or index funds. Keep an eye on your fees, though, whatever type of investments you choose. The savings you get from paying lower management fees over the years can easily add up to thousands of dollars. Because of that cost savings, after fees, you’ll likely get better long-term performance.

What if I got a late start?
Many people will put their mortgage behind them in their 40s, but those who married late and had kids even later may find that they’re running behind. If that’s you, you may have to do a bit of extra planning. Try to accelerate paying off your home by making biweekly mortgage payments instead of monthly payments. The difference is only a few hundred dollars a year but those few extra dollars will shave almost five years (and tens of thousands of dollars) off your mortgage.

“You don’t need to do everything at once, and the high expenses of a young family during your 40s will undoubtedly put a crimp in your savings to some extent,” says Al Feth, a fee-for-service adviser in Waterloo, Ont. “But don’t deprive yourself by putting every nickel towards the mortgage at this stage. By simply making biweekly payments, you’ll be on track to have your home paid off by age 60 or 65. That’s good enough.”

Use RRSPs to save
Unless you have a particularly high or low income, you should probably stick to RRSPs — rather than Tax-Free Savings Accounts (TFSAs) — for your retirement saving at this point. You’ll get an immediate tax refund that you can reinvest and chances are you’ll be in a lower tax bracket when you retire, so your money will be taxed at a lower rate when you withdraw it. “If you just start saving in an RRSP at any point in your 40s and continue doing it through your 50s, you’ll be fine,” says Mary Prime, a fee-only planner at Prime Consulting in Toronto.

TFSAs, on the other hand, are best reserved for short-term savings — for instance if you’re saving up for a new car. As a general rule, as long as it’s likely that you’ll be in a higher tax bracket when you take the money out than you were when you put it in, a TFSA is a good bet.

The top financial lessons from our 40s — Colin and Cheryl Miller
In 1985, when I was 25 and Cheryl was 22, we bought our current home in the town of Strome for $35,000. We paid it off by the time I was 40. All around us, people were buying larger, more expensive homes and taking on more debt. We pride ourselves on not falling into that trap. We’ve lived in the same 1,400-sq ft bungalow with a nice backyard for 25 years now and have no plans to move.

All the excess money we had from paying down our mortgage early allowed us to help our three kids pay for their post-secondary education without sacrificing our retirement goals. We were a one-income family for many years, so Cheryl and I never contributed to RESPs for the kids, but that hasn’t much mattered. Cheryl went back to work part time when the kids were in middle school and we used her earnings to help pay for their post-secondary education. The kids worked part time as well to cover some of their university expenses but we contributed whenever we could. It worked out very well for all of us.

Now I’m 50 years old, and money’s no problem. We have peace of mind and are even considering early retirement in our mid-fifties. The lesson we learned is that even modest incomes can accomplish big savings goals if your approach to your finances is a disciplined one.

Supercharge your savings
Now is the time to figure out how much you need to save. Start by taking your gross income and subtracting income taxes, savings, mortgage and debt repayment, providing for your children, and work expenses. What’s left is the amount you’ll probably want to keep spending on yourselves once you’re retired.

Even if you’ve made no headway on saving in your 40s, you’ll probably be able to save a bundle in your 50s. Here’s how to do it. Pay off your mortgage and other debts as soon as possible. Help your kids get a good education, but then get them financially independent.

Most Canadians are able to accomplish those two things by their early 50s, if not earlier. The trick then is to whisk the money that used to go towards your mortgage and the kids away into savings. If you haven’t saved much to date, you probably have loads of unused RRSP room. So when you start to put serious money away, you should be able to earn big juicy tax refunds. When you get all those factors going for you, you should be able to save as much as 30%, even 40% of your gross income if you set your mind to it, says Malcolm Hamilton of Mercer Human Resource Consultants.

If you and your spouse can do that for 10 years while earning average salaries or better, that should provide enough for a typical middle-class retirement in itself. If you supercharge your savings for longer, or you earn more, you could do even better.

Can you retire early?
If you do particularly well at saving in your 50s, you may be able to retire in your early 60s instead of at age 65. But early retirement requires a much bigger nest egg than you might think. Firstly, of course, your savings have to last for a longer retirement. Secondly, government pensions and other senior support plans generally don’t kick in until age 65, so you’ll burn through a lot more of your own savings every year before then.

To find out how much more you’ll need, try starting with what you would need to retire at age 65 and work backwards. Say you think you’ll need $50,000 a year to live on in retirement (all figures are in today’s dollars to remove the effect of inflation). At age 65, you might get $30,000 a year from government pensions and require $20,000 a year from your savings. Assuming a 4% withdrawal rate, that entails a nest egg of $500,000. If you make the conservative assumption that your investments will just keep pace with inflation during the years leading up to age 65, that means you will need an extra $50,000 in your nest egg to cover every year earlier you retire. So if you were to retire at age 63 instead of age 65, you would need $600,000 instead of $500,000.

If saving that much is beyond reach, you have other options. Many people shift down to part time work to bring in extra income for a few years. Of course, if your investments do exceptionally well, or if you have a defined benefit pension plan, then retiring early will prove easier.

The top financial lessons from my 50s — Glenn Kohaly
I write, do photography and sell ads for boating magazines. I work eight months of the year and take the summers off. I’m now 62 and my adviser tells me I can afford to retire. But I truly love what I do, so I’m not ready to retire yet.

I’m in a good position now because of the planning I did in my early 50s. I tracked all my spending over a year and I used it to figure out how much I thought I’d need to live on in retirement. When I looked at what I earned and what I spent, I didn’t see a pretty retirement. So I realized I had to be more diligent about saving, and invest wisely.

It all starts with putting a buck away, but my wife Virginia and I didn’t totally sacrifice today for tomorrow. We drive a nice car, but we bought it used. We like to travel, but I get online and save money by carefully planning our own trips. Lately we bought a time share on resale at a fraction of the original price. It’s just another way to enjoy the finer things without spending a lot.

You should invest in what makes sense to you. For some people it is stocks. For me, in my 40s and 50s, it was rental properties. Or you can invest in yourself. If you’re an electrician and want to get out on your own, buy a truck, some tools and some advertising and get going. The overall goal is always the same, to grow your money in a reasonably safe manner and earn a reasonable return.

I sold most of my properties about three years ago when prices got really high. Now I have my money in exchange-traded funds (ETFs). I like ETFs because they give me a broad basket of investments without the high fees of mutual funds. These days we live a good middle-class life. We’re prepared for the future and we have adequate funds to enjoy today. I think our situation shows that it is totally possible for ordinary people to build up a solid retirement fund.

You need less than you think
Many advisers say you need scads of money to retire, but most middle-class Canadians with paid-off homes can retire on surprisingly modest amounts without sacrificing their lifestyles. “You don’t really need a fortune to retire,” says Norbert Schlenker, a fee-only financial planner with Libra Investment Management of Salt Spring Island, B.C.

Living well is even cheaper in your 60s than it was in your 50s. You’re probably no longer making mortgage and debt payments, supporting children and covering work expenses — and don’t forget: when you retire, you no longer need to save for the future. With reduced spending, you need less income, so your taxes go down too (plus you benefit from a number of extra tax breaks specifically for seniors). If you’re a typical middle-class couple with your home paid off, you’ll only need about 50% to 60% of the income you earned much earlier in life to live an equivalent lifestyle.

A typical middle-class senior couple spends only about $40,000 to $60,000 a year. But it feels like you’re living on an income of almost double that, compared to your 30s and 40s. On top of that, this is the decade when government pensions kick in to give you a big leg up. The Canada Pension Plan (or its Quebec equivalent) plus Old Age Security typically provide a senior couple with almost $30,000 a year after age 65, if you’ve worked at average-paying jobs most of your adult lives. With that level of support, you’ll only need to come up with a further $10,000 to $30,000 a year. That means you’ll need a nest egg of just $250,000 to $750,000 at age 65, based on a sustainable withdrawal rate of 4% plus inflation adjustments.

The part-time solution
If even $250,000 seems out of reach, don’t fret. You don’t have to keep working full time until you’re 70 (although increasingly, if you want to, you can). Picking up a bit of part-time money doing something you enjoy makes a surprisingly big difference. If you only have $190,000 saved at age 65, for instance, then working part time for another three years at a garden centre earning $20,000 a year allows you to live as if you had retired at age 65 with $250,000 in the bank. You just use half your garden centre income for living expenses, and save the other half.

Reduce your risk
No matter how much you have saved, your 60s is a good time to reduce the overall risk level of your investments. You should try to protect yourself from four different kinds of risk: market risk, inflation risk, the risk of picking bad investments, and the risk of outliving your savings (called longevity risk). As Schlenker advises, “the prescription is having a diversified portfolio, so no matter what happens, not everything in your portfolio will go wrong.”

The equities in your portfolio will help protect you from inflation risk, while government bonds and GICs will help protect you from market risk and the risk of poor investment choices. Life annuities can help protect you from longevity risk. You should also increase your portfolio’s overall allocation of safe investments, such as GICs, short-term investment grade bonds, or real-return bonds. You’ll find lower risk helps ensure a more secure retirement.

The top financial lessons from my 60s — Dave Gower
I’ve been retired going on 11 years now. I like to joke that with that amount of practice, I’m getting pretty good at it. What I’ve found is that planning a retirement life with a great long bucket list of things to do is kind of a waste of life. To me it’s the freedom that’s so joyous.

I’m 67 now, and financially I’m comfortable. I earned a good pension from working 33 years for the government. Having the place paid for, so you’re not paying rent and you’re not paying mortgage payments, I think is absolutely crucial.

It’s important to find interesting things you like to do that turn your crank. I’m doing renovations on my 170-year-old house right now. I’m also active in the community doing volunteer work. In terms of lifestyle quality, those kinds of things are important to me but take almost no money.

I found after I retired there was a huge drop in what I needed to spend. I’m finding that my pleasures in life become simpler and simpler. Getting older does that for you. You no longer want to go skiing in the Alps, for example. It just seems like too much work.

Money is necessary for a decent quality of life, but when you have money beyond a certain point, it’s not so important. I’ve seen people where I’ve thought quietly to myself that the money is getting in their way. People can get obsessed with things like making a 10% return on their investment. I think to myself, “You’ll be dead in two years if you keep worrying like that.”

The money I have on this side of the tax barrier is in money market funds so I can get my hands on it for things like renovations. The money I have on the other side of the tax barrier — in RRSPs, in other words — is in mutual funds. I invest conservatively. Although I have an MA in economics, I’m happy to leave the investing to others. I’ve done reasonably well. My investments are down but a lot less than some of the horror stories I hear and far less than if I went cowboying around doing things like day trading.

Focus on what matters
In your 70s it’s natural to focus on the things that matter most (and that you can still do). As you simplify your lifestyle, you may find yourself deciding to sell the three-bedroom family house to buy a smaller house or condo, especially if you don’t want to deal with maintenance or stairs. This might generate up to several hundred thousand dollars for your retirement savings. If you need more, it may help to relocate to an outer suburb or smaller town.

Convert your RRSP
When you turn 71, the government forces you to wind up your RRSP and convert it into either a Registered Retirement Income Fund (RRIF) or an annuity. Or if you want, convert a bit to both.

RRIFs are similar to RRSPs, in that they are tax-sheltered accounts that can hold any type of investment, such as GICs, exchange-traded funds (ETFs) and mutual funds. The big difference is that with a RRIF, the government makes you withdraw minimum amounts from the account every year. That can increase the risk that the RRIF will get depleted while you’re still alive, says Jim Otar, a financial planner and researcher at retirementoptimizer.com. The required RRIF withdrawal rate in the year you turn 72 is currently 7.38% of market value, and the amount increases thereafter. While you don’t have to actually spend everything you withdraw from your RRIF, it complicates figuring out the right amount of steady cash flow you can afford to live on.

You can help reduce the risk of running out of cash by converting at least part of your savings to an annuity. With one lump-sum payment, you can get a regular income for the rest of your life, which can be a big stress-reliever for those worried about outliving their savings. Plus, most annuities pay more if you get them later in life, because the insurance company has to make fewer years of payouts.

The rates for annuities vary with interest rates — which are currently quite low — but right now a 70-year-old couple can get an income of 4.8% of the principal you put down for life, fully indexed to inflation, says Otar. If you’re happy with payments that increase by a set 2% a year — but are not guaranteed to keep up with inflation — you can bump the payout rate to 5.4% a year. Fixed-rate annuities with no inflation adjustment pay even more. Annuities are not well-suited for everyone, so investigate them carefully before you purchase one.

Plan your legacy
If you haven’t done so already, your 70s are a good time to plan your financial legacy. Make sure your will is up-to-date. If you own a business, draw up a succession plan to sell or transfer the business. You should also think about how to pass on financial assets that you might not need to heirs and charities while you’re still alive. Even if the amount of money you can afford to give away before your death is modest, it can have a big impact. A contribution of a few thousand dollars a year to a grandchild’s Registered Education Savings Plan (RESP) could make a big difference.

Setting up trusts or foundations can help you pass money to heirs and charities tax-effectively, says Tony Maiorino, vice-president and head, RBC Wealth Management Services. Many of these strategies used to be available only to the wealthy, but are now within reach of the middle-class. For example, a family trust can be a good way to give to children or grandchildren at lower tax rates, while continuing to allow you access to the principle if you need it, Maiorino says. You can lend money to your family trust, where it is invested. The interest, dividends and capital gains earned by the trust on those investments are distributed to your beneficiaries. But you still have access to the principal at any time by “calling” or taking back the loan.

However, not so wonderful was their apparent financial situation. The total cost of tuition, books and living expenses for John (who left home to go to university) was $20,000 a year. For Mary (who lived at home) it was $13,000 a year. That resulted in a combined four-year price tag of $132,000 for the two of them. They both worked summers and got some help from their parents, but they still graduated with a combined $50,000 in student loans.

By age 25 they both had jobs with entry-level salaries, but they had no significant money in the bank, no apparent assets, and they still owed $20,000 in student loans. While their financial situation sounds grim, they in fact had a valuable hidden asset: the earning power resulting from their educations. When you consider that the median annual wage of Canadians with a bachelor degree is about $18,500 a year higher than the wage earned by those with just a high school diploma, it’s obvious that going to university was a great investment. It will likely amount to an extra $650,000 each in income over their 35-year careers.

In the remaining years of their 20s, John and Mary continued to progress in their careers, finished paying off their student loans, bought a car, and started to save up for the down payment on a house. Then one day when they were nearing their 30th birthdays, Mary approached John with a twinkle in her eye: “I’ve just been to the doctor and guess what?”

In their 30s
Not long after turning 30, John and Mary were blessed with the birth of their first child, a delightful baby girl named Rachel. With this extra rather expressive person in the family, their small apartment felt cramped. So they scraped together a down payment to buy a house in the suburbs. They stretched to buy as much house as they could afford and opted for a 35-year amortization to keep their payments low. Not long after moving, they were blessed again by the birth of a son, Tyler. By the time Mary got back to work after her second maternity leave, life was a hectic scramble.

By the time they reached 35, their net worth had grown to $100,000. Most of that came from the down payment on their house and subsequent mortgage payments. They hadn’t saved any significant amount on their own, although John benefitted from his employer’s contributions to a defined contribution pension at work.

Still, they were pleased to have mostly managed to stay out of trouble with consumer debt, although they had run up their credit card balances at a couple of points and currently owed $10,000 on a car loan.

In the remaining years of their 30s, they were able to get their finances under better control. Their incomes grew as their careers progressed and as they neared their 40s, they were able to start saving again.

In their 40s
As John and Mary turned 40, they started to find their lifestyle improving. Their expense load lightened a little when the kids no longer needed after-school care. But they still spent a lot on sports, various lessons, summer camp, quickly outgrown clothes, and more electronics.

They continued to get good pay increases as their careers progressed, despite occasional setbacks, like a six-month period when Mary was laid off and out of work.

When they turned 45, they added up the value of their assets and subtracted the money they owed, and found they had a net worth of $250,000. Most of it was in their house. They had managed to make some extra mortgage payments and now more of their regular payment was going to pay down the principal. The market value of their house had ups and downs, but overall kept pace with inflation. They also had about $100,000 in financial assets consisting of a combination of personal RRSPs, RESPs, as well as employer group RRSPs and defined contribution plans. About 70% of their retirement money was invested in equities for growth. They had a small amount of debt attributable to a car lease, but no other consumer debt and were faithfully paying off their credit card balances each month.

During the rest of their 40s, they continued to build savings and pay down the mortgage. As they neared their 50th birthdays, they could see the financial progress they had made, but now they were starting to think about retirement. How much money would they need and when would they have enough?

In their 50s
As their 50th birthday present to themselves, John and Mary paid their financial adviser $1,000 to prepare a financial plan. Their adviser told them that if they wanted to retire at age 65, they should plan to have their house paid off, plus financial assets of between $250,000 to $750,000, depending on the retirement lifestyle they wanted.

John and Mary thought that financial savings of $400,000 would be enough, and secretly hoped they might be even able to retire a bit early. Then they looked at their current financial savings of $115,000 — and the fact they still had a ways to go in paying off the mortgage — and they wondered if they would reach their target at all.

But as their 50s progressed, they found their savings accelerating. It helped that their kids, Rachel and Tyler, had graduated from university and got jobs, so they no longer needed support. By age 55, John and Mary’s net worth was up to $450,000, their $300,000 house was fully paid for, and their financial assets were up to $150,000.

They still had a ways to go, but they made sure most of the money that previously went towards their mortgage and kids’ educations was channeled into savings. They had lots of unused RRSP room, so they were able to generate hefty tax refunds too. These changes supercharged their savings, and they were amazed to find themselves socking away a full $40,000 a year.

In their 60s
By their 60th birthdays, John and Mary had grown their financial savings to $350,000. They were getting close to what they felt they needed to retire, but they weren’t quite there yet. Then John was laid off. Mary was growing weary of the 9-to-5 grind and didn’t know how much longer she wanted to keep going. John received a good severance package, but had
trouble finding a new job.

John started taking temporary contract jobs. They paid almost as well as his previous job, but without benefits. Mary soldiered on at her job for a couple more years. Then she took on a part-time job with the same company with less stress, but at a lower pay rate. They continued to save money, but at a slower clip. John gradually scaled back his contract work and they both retired fully at age 65.

When they retired, John and Mary’s nest egg was worth $400,000, plus they had saved up a $30,000 dream fund for an extended trip to Europe to celebrate their new freedom.  About two-thirds of their savings were invested conservatively in fixed income, with the remainder in stock ETFs. The value of their house had kept pace with inflation in the previous decade and was worth $300,000. Their combined net worth was $730,000, and they were debt-free.

Starting at 65, they lived on a total of $46,000 a year, plus subsequent inflation adjustments. Their annual income consisted of $30,000 from CPP and OAS, plus $16,000 drawn from their savings.

With more time and no work-related expenditures, they found they spent less on things like meals out and clothing, and they sold one of their two cars. On the other hand, during the first few years they spent a lot more on travel. They spent much of their dream fund on a spectacular two-month tour of Europe when they were 66. As the years rolled on, they realized they were financially secure. Their planning had paid off and they were getting the most from a rewarding and comfortable retirement.