How to start saving for retirement at any age
Young couple sitting at a laptop

Whether you’re thinking about it or not (especially if you’re not thinking about it), retirement planning strategies are a foundation of solid financial planning. Sure, if you’re in your 20s and 30s, it might not be top of mind, but when you’re younger, you should start planning to take advantage of our most precious nonrenewable resource: time.

In your 40s and 50s, most of us will be at the top of our earning peak and at the perfect time to seriously save and make the most of our earning potential. And into your 60s and beyond is the time to begin laying out the specific steps for our actual retirement exit strategy and getting ready to make it happen.

No matter how old you are, this is when your future self will thank you for a bit of current financial planning. 

Start now and as early as you can

Retirement is way too far away and, for many younger people, there might not be a lot of extra funds lying around to put toward saving. But when it comes to long-term saving, the magic words are compound interest. The longer you let your investment grow, earn interest, and then make further interest off the interest you’ve already earned, the more power you can add to your retirement planning.

The more time you have, the less money you need to invest now and still have a meaningful impact down the road. Even if you’re older, though you might need to make more significant contributions initially than you would have 20 years prior, there’s still time to build an impactful retirement fund.

The retirement superstars: RRSP and TFSA

In Canada, you can use two main types of tax-advantaged savings accounts to build wealth and prepare for retirement. Both have specific advantages, and you might choose one or the other to get the most benefits. In many cases, using both is a smart strategy to simultaneously give yourself the most wiggle room with the most investment power simultaneously.

●      Registered Retirement Savings Accounts (RRSP)

“Retirement” is right there in the name! With an RRSP, your contributions are tax-free when you deposit them, meaning you can invest more money — and more money invested means more earnings. Even better, your annual RRSP contributions are deducted from your yearly income tax when you deposit. Tax isn’t charged on your RRSP until you withdraw from it. Ideally, this will be once you’ve retired and your income (and tax bracket) are much lower.

The risk with an RRSP is that you might need to withdraw money early at a significant tax fee. (There are a few instances where you can withdraw from an RRSP without penalty, like buying your first home or paying for post-secondary education.) It’s a great way to encourage investment, but only if you can afford it. Think of the money you deposit into your RRSP as cash.

●      Tax-Free Savings Account (TFSA)

While an RRSP isn’t tax-free, it’s tax-deferred — you’re just putting off paying the tax until you’re in a more beneficial tax position post-retirement. Everything you earn inside a TFSA isn’t charged tax upon withdrawal. Unlike an RRSP, you can withdraw any amount from your TFSA at any time without penalty. This makes it a powerful vehicle to save for retirement and use the funds at other points if you need them. You can re-contribute any withdrawals the year after you remove them, so you never lose contribution room just for using money from your account.

This flexibility is great if used wisely, but going back to “start now and as early as you can,” you want to leave the funds in your TFSA alone as much as you can. That’s when they grow and make the most advantage of tax-free growth.

Make the most of employer matching

There aren’t too many times in the world where “free money” is really free, but employer RRSP matching is one of them. If you’re fortunate enough to work for a company that offers it, then when you set up automatic paycheque deductions into a retirement account, they’ll match your contribution up to a certain percentage.

It’s an incentive for you to save for retirement, and to not do it is just turning down extra money. Even better, the contributions are deducted from your pay before you see the money, making it easy and automatic to save for the future without thinking about it. It’s a win-win.

Get your mind off it with automatic contributions

You might think you’ll have the willpower to manually move cash each paycheque into your accounts or make a large lump-sum payment when it feels right. But you’ll probably be wrong. Smaller monthly payments via automatic contribution are an incredible way to grow your retirement savings all year long without you having to lift a finger after setting them up. Out of sight, out of mind - until you look at your balance and see how much more you’ve saved.

Visualize your ideal lifestyle as you get closer

For many younger people, it can be challenging to know how you want your retirement to unfold with so many unknowns. For many folks, a basic “save as much as you can and figure the rest out later” plan will work fine for a decade or two. But when you’re older, have settled on how your relationship and family will look, and have a better sense of how much overall net worth you’d like to support you, it’s time to get more specific. Retirement is unique and means something different to everyone.

This is the time to work with a financial advisor or retirement planner to start asking yourself more detailed questions and begin framing out your dream retirement scenario. This includes not only an income withdrawal strategy so that you can make the most of the funds you have for the longest time but how you’d like to live and what good uses you’d like to put your money toward.

Your planner will guide you through, but some common factors you can think about at any time include:

●      What type of home would you like to live in? Do you plan on staying in your current home?

●      Where would you like to live, and would you like to spend parts of the year in another area?

●      What activities and bucket list goals bring you joy and that you’ve dreamed of pursuing in retirement?

●      Are there any particular ways you’d like to provide for family members as you begin planning your estate?

Happy saving!

Jeremy Elder is a Toronto-based content marketer and copywriter with over a decade’s experience telling stories for some of the world’s biggest brands. He’s an expert at finding WiFi wherever you least expect it.

Jeremy Elder is a paid Sonnet spokesperson.
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