How Much is Enough?
Preparing for retirement is work. That’s one of life’s great ironies. It’s also one of the most important investments you’ll ever make. Like all worthwhile exercises, a smart retirement requires careful planning and good habits.
No two people are the same; that’s why it’s so difficult to answer the question, “How much do I need to save for retirement?” Before answering this question, you’ll want to consider:
- At what age do I want to retire?
- At what age should I start saving for retirement?
- How much should I put away on a monthly/ yearly basis?
Medical advances that are helping Canadians live longer and healthier lives directly impact retirement planning and your savings goals. Canadian men and women are living up to five years longer that they were 30 years ago. Although individual situations can vary greatly, gone are the days when age 65 was considered a retirement norm.
For many people, retirement can last upwards of 25 years. If you don’t save accordingly for a longer life, you run a very real risk of outliving your retirement savings. As an alternative to complete retirement, many of today’s pre-retirees are opting for a gradual transition to retirement by electing to continue with part-time work. It could be your chance to open up a wealth of exciting new opportunities.
As another consider, make sure you understand the rules surrounding company pension plans. Most plans have rules, such as when you can start withdrawing money, how much or how little you can withdraw, and how often. These rules could also potentially impact how long your retirement savings will last.
When it comes to saving for retirement, starting early is your best bet. For some, especially those in their early 20s and 30s, putting money aside – even a small amount from each paycheque – for something so seemingly distant may be a hard pill to swallow. At this stage of life, most people have competing financial priorities, such as education expenses, mortgage payments, and the cost of raising a family. It may seem difficult, if not impossible, to fit retirement savings into your plan.
But it’s worth noting that being young can give you a huge advantage. When you start early, you have the power of compounding interest working in your favour, so you can wind up with far more money that someone who starts later in life.
Be mindful of letting your expenses become an excuse not to save – a small monthly contribution can make a big difference over the long term. No matter your current age, remember that the best time to start saving is today.
Without a crystal ball vision of the future, it’s not surprising that coming up with the exact retirement savings amount may seem impossible. That’s where I can help. Given your stage of life and aspirations for the future I can help you understand how to get ready for retirement. Of course, the first step is to determine how much and how frequently you will need to contribute to your savings.
Once you have a number to aim for, make saving simple by “paying yourself first” through automatic monthly contributions. It ensures you’re putting your money to work right away and can help you resist the temptation to spend money elsewhere or to put saving on the back burner.
Consider all the savings vehicles available to you: registered retirement savings plans (RRSPs); tax-free savings accounts (TFSAs); and non-registered accounts. And remember that both RRSPs and TFSAs provide tax-advantaged growth that can maximize your savings over time.
You have put careful thought and planning into your career, so that same effort needs to be made for your retirement – as far away as it may seem. Set some time aside now to start mapping out your personal milestones and help ensure your road to retirement is a smooth one.