When Should I Start Saving For Retirement?

Amassing enough investments to retire comfortably can be a daunting task, especially for younger Canadians today who are struggling with increasing living expenses and the highest mortgage rates we have seen since 2008. 

There are many rules of thumb regarding savings level but the question on when to begin saving for retirement has become increasingly complex and personal. One thing is certain though, the earlier you start saving, the more financial flexibility you will have later in life. The illustration below shows the impact of a $500 monthly contribution to an investment account starting at a variety of ages.

The chart above shows the clear value of investing early in your career lifecycle. The underlying numbers also capture the true value of compounding investment returns. For example, those who start investing at Age 20 contributed $276,000 (36% of total ending balance) and received investment returns of $485,223 (64% of total ending balance) while those who start at Age 40 contributed $156,000 (59% of total ending balance) and only received $109,870 of investment returns (41% of total ending balance).

 The information above reinforces the value we place in Group Retirement Plans through employers. Incentivizing saving for retirement as soon as eligible through matched contributions sets employees on the right path for retirement. As an example, if the 20-year-old investor above received matched contributions from their employer plan they would have more than $1.5M available at age 65.

Considerations for investing

Debt – Carrying large amounts of debt (including a mortgage) can limit your saving potential in the future. Consulting with a qualified financial planner can help you understand the impact of this debt on your savings and prioritize your cashflows.

Tax Advantaged Accounts (TFSA, RRSP, FHSA, etc.) – Canada offers a wide variety of investment accounts which can help minimize the taxation on investment gains and ensure your retirement income is tax efficient. Ensuring you are investing in the correct account types will help ensure you can meet your personal financial goals.

Life Expectancy – Planning for retirement can be complex and risk management is essential, nobody knows exactly how long they will live but conservative planning can ensure you do not outlive your investments. Financial Planning Canada guidelines suggest that at age 65, 10% of males can expect to live to Age 97 and 10% of females can expect to live to Age 100. Ensuring adequate income for life is critical to your retirement savings plan.

If you want to review your current retirement savings strategies or look to start saving today please reach out to Mark or Andrew at the Courneya Group to find a time to discuss.