Saving for retirement can be a difficult task when we all have various financial responsibilities. When it can often feel like a long way off, for many of us it is not always the priority. That said, it should form a crucial part of your financial planning as you look ahead to the future. The earlier you can think about saving for retirement, the better. This is so that you can begin to plan for your expenses and establish how best to save to reach your goals. One of the best things to do is to focus on your financial wellbeing now and where you want to be in the future when you retire. To ensure you meet your retirement goals comfortably, here are our recommended steps for saving for retirement.
Create a retirement plan
The first part of getting started with saving for retirement is to create a retirement plan. Within this, you will set your retirement goals and prepare to stick to them. Although it can feel overwhelming initially, all you need to do is consider your goals for the future and what you would like to achieve. With each goal, you need to be specific yet realistic. Simply wanting to retire comfortably is not enough detail. Instead, consider how much you would like to save for retirement. When would you realistically like to retire? What kind of lifestyle would you like? How much do you need to put aside to reach this goal? The clearer your goals and retirement plan, the more likely you are to achieve what you want.
Prepare a budget
Balancing your financial priorities can be difficult when you need to throw saving for retirement into the mix as well. Competing demands like mortgage payments or rent, student loans, car payments and sometimes debts like credit card debt and payday loans can come into play. For this reason, now that you have a retirement plan, a budget can help you to assess where the funds for your retirement plan can come from. Create a spreadsheet to input your income, expenses, and any savings. Add in your retirement fund to review where this money can come from, and to see where you can cut back on your expenses to maximize your retirement savings. Check out our guide on how to budget for some top tips to help.
Now you know what you want to achieve, it is time to begin saving for retirement! It is a good idea to put your retirement fund aside as soon as you receive your paycheque so that you are not tempted to spend the money elsewhere. You should put this money into a separate account, for instance a RRSP. You could set up an automatic payment with your bank so that you do not even have to think about it. Remember it is never too early to begin saving for retirement – in fact, the sooner you do the better. The earlier you start, the less you will have to save and the more interest you will accrue over time. Even if you feel like you do not have much money to put away initially, start with anything you have including any extra cash or tax refunds, and you can build this amount up over time.
Make your money work for you
Where you save your money can make a huge difference to your savings, which is why we recommend saving your retirement fund to a Registered Retirement Savings Plan (RRSP). Any contributions you make can be taken from your income with regular automatic deductions, reducing the amount of income tax you need to pay overall. This means you have more money to put towards your RRSP. By the time you retire and want to withdraw the funds, you will likely be in a lower tax bracket. The only consideration to note is that you cannot withdraw from an RRSP early without paying penalty taxes, unless it is for a first home or post-secondary education. A TFSA (Tax Free Savings Account) is also another great option, allowing you to save for retirement and shorter term goals.
What is the average retirement age in Canada?
The average retirement age in Canada according to Statistics Canada is 64.5 years. Despite this, many people consider 65 to be the standard retirement age given that Canadians are able to begin collecting Old Age Security (OAS) and the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits at 65. It is possible to collect them before this age, although overall your payments will be reduced. Self-employed Canadians typically retired the latest in 2020 at 68, private sector employees next at 64.7, and public sector employees retired the earliest at the age of 62.4. Hopefully you will have a good idea in mind of when you want to retire, so it is time to begin saving for retirement with your goals in mind.
How much money do I need to retire in Canada?
The answer to this question is completely variable and dependent on what it is you want from retirement, and what you have now. For instance, what do you currently have in savings? What kind of lifestyle do you want? One full of vacations and plush cars? Or one where you are prepared to begin a new part time role in a passion you have had for a long time? These questions, as well as any debt relief you may need, the current condition of your mortgage, and the estimated age that you would ideally like to retire all play an important role in how much money you will need to retire in Canada. It is crucial to ensure any debt is paid off when it comes to saving for retirement. Working closely with a Licensed Insolvency Trustee can help you to get ahead when saving for retirement.
Saving for retirement is a key consideration when it comes to your financial situation. If you need advice or want to know your debt relief options to put you in great stead for the future, book a free consultation with one of our reputable Licensed Insolvency Trustees. Learn more about budgeting and making financial decisions for the future with Spergel – you owe it to yourself.