How to Save for Retirement in your 20s, 30s, and 40s
It's official – Statistics Canada has recently reported that there are now more people over 65 than under the age of 15. This means that the population of seniors is currently growing four times faster than the whole Canadian population at large! According to other studies conducted by various Canadian financial institutions, 1 in 3 of these seniors is carrying some kind of debt into retirement, mainly that of credit card debt (more than any other age group in the country!) These stats have got a lot of people concerned for their own retirement.
There are different ways to look at saving for retirement, and most of the differences in saving strategies will depend on which age bracket you are currently in: 20s, 30s, or 40s.
20 – 29: Pay down high debts FIRST.
For those of you in your 20s, it is not a surprise that retirement funds are not top priority right now. Your parents might be pushing you to start an RRSP, which in their case has proven to be an effective way to save. But for most millennials who are still in school or recent grads of post secondary education, RRSPs won’t really offer tax benefits until they reach a higher income bracket. This is why it is recommended to shift focus towards paying down debts before setting up an RRSP.
Student loans, and credit card bills should be paid off before looking into low-risk investments because interest rates are still very low. Paying off your debt before you start investing in your retirement could actually set you up to contribute more later, as long as you’re committed to start saving when you become debt free. The best scenario would be to contribute small amounts to your future savings when possible, as the time value of money is greater when you are young because there is more time for compound growth.
Another important trend that sets millenials apart from other generations is the fact that many of them tend to stay away from the corporate world and work as self-employed contractors. This implies a lot more reliance on automony and independent strategizing for the future, rather than relying on government programs such as the Canada Pension Plan. Especially in an ever-changing economy, there is no knowing what the CPP will look like once millenials go into retirement. So rather than betting that your government or employer retirement plan will come through for you in the end, it may be safer to build up your own savings instead.
30-39: Time to Review or Play Catch-up
You may have set up a retirement plan when you first entered the workforce, but depending on your income level and savings, this could be a good time to revisit and modify your approach. Maybe it’s time to increase your contributions. For example, if you upped your monthly retirement savings by $250 on a 5% yield, you could end up with over $280,000 by the age of 65.
If you haven’t started thinking about a retirement savings plan yet, it is definitely time to start. Setting up your savings a little later in the game shouldn’t be a problem, as long as you have your debt under control. If you would like to discuss some retirement strategies, give me a call today.
Based on recent retirement polls, it is recommended that average income earners should spend a minimum for 25 years saving up for retirement to ensure a comfortable and stable retirement. So if you are just starting to save at age 40, this still gives you the 25 years you need to retire at age 65 – but payments must be consistent and you may need to set aside larger monthly contributions than someone in their 20s or 30s. This shouldn’t be too hard for most because generally someone in their 40’s will be making a higher wage than they did in their younger years. So even if you have to put away double the amount, the payments should be easier for you now. If we double the $250 investment made by someone in their 30s to $500 per month for someone in their 40s, that 40-year old could still end up with close to $300,000 in savings assuming the same 5% yield on their investments.
40-49: It’s Not Too Late to Start Saving
No matter what your age, the best way to make sure you have a safe retirement plan is to talk to a Certified Financial Planner and come up with a plan that’s suited to your unique financial situation. Call me today and I will help you set up an appointment with one of our financial planners who is certified to help my clients in the short, medium, and long term, so you’re ready for your retirement.