The younger you are, the harder it can be to imagine what retirement is going to look like. For some, that major life event is 40 or more years away. The reality is this: the earlier you start retirement savings, the more likely you are to have a successful retirement, one that’s filled with all the things you want to do, and free of financial stress.
A survey conducted by Sun Life Financial Canada found that baby boomers are feeling an increased demand on their finances. One in five retirees report making mortgage payments, 66 per cent still have credit card debt, 26 per cent have auto loans, and others have debt from health care costs, holidays and renovations they’ve made on their home.
The bottom line is many seniors have not saved enough for their retirement and are carrying debt in order to get by. To avoid financial stress in your retirement years, here’s how to start retirement savings now.
Make a retirement savings plan
Automatic contribution is one of the easiest ways to save. By setting up a payment schedule in your bank account, you can ensure that with every paycheck, a select amount of money will be saved into your RRSP (Registered Retirement Savings Plan). Generally speaking, you should aim to save 10 per cent of your pre-tax income in a retirement savings fund. This could be a combination of your workplace pension and your own savings. Women who plan to take time away to have children should save more, according to a survey conducted by the U.S. based company TIAA, a leading retirement services provider. This survey says women should be saving 18 per cent of their pre-tax income to build an equivalent amount of savings.
Understand your savings goals
Making a plan to reach your goals is the best way to approach retirement savings. Ask yourself what you hope to be doing in retirement, where you want to live and how much you think that lifestyle will cost. This can be hard for younger Canadians, but thinking about those goals now will help put them in focus. A recent poll of Canadians by a CIBC poll called Am I Saving Enough to Retire found 32 per cent of Canadians between 45 and 64 have nothing saved for retirement, and 53 per cent of Canadians say they don’t actually know if they are saving enough. Stay out of this situation by actualizing your goals early.
Calculate your retirement savings
The Canada Revenue Agency has an excellent retirement income calculator. Whether you have been savings for 20 years or just today, you can use it to estimate what your retirement income will look like. The calculator takes about 30 minutes to fill out, and it can give you a realistic idea of how much you need to be saving to reach your goals.
Take advantage of all your retirement resources
There are many different ways you can save for retirement. You can use your RRSP or your TFSA (Tax-Free Savings Account). The RRSP defers income tax until you are ready to withdraw the money, while the TFSA allows your money to grow tax free with no income tax bill when you withdraw. TFSA contribution money is already subject to income tax. For those in a lower income bracket, the TFSA might be more advantageous, while those in the top marginal tax bracket may find the RRSP works well. Also be sure you’re taking advantage of your employee pension plan, if you have one. They often match your contributions. If that is the case, contribute the maximum amount possible.
Get professional advice for retirement planning
When it comes to retirement planning advice you are spoiled with choice. You can choose to work with a financial advisor, but be sure to understand what their fees are and what kind of products they are recommending. A good advisor will look at all investments, not just ones that will make them money in commissions. Do-it-yourself investing is also an option, and you can start to do that by opening an account at a discount brokerage of your choice.
Planning for retirement can start today, no matter your age. Though it helps to start early, older Canadians can also do the right thing with their retirement savings.