You’re in your 20s and working at your first “real job.” But you’re still paying off student loans, and the income you’re earning seems to just be enough to get you by. Let’s face it: saving for retirement is one of the last things on your mind.
Who wants to hand their survival pennies over to a financial institution until they turn 65 (oh wait… that’s been pushed to 67). The reality is we are living longer, and that means most of us will have to retire later and stretch our money a lot further to live comfortably in our retirement years.
How much money will I need to retire?
While many financial advisors say you need a replacement amount equivalent to 70 percent or more of your working income, research shows that most couples get by comfortably on 50 to 60 percent. For a middle-class single person to retire, the annual cost is estimated to be around $28,000 to $42,000. Some experts even say that savings in the seven-figure range will be needed to retire comfortably in the future!
If these numbers sound alarming, they are. The moment you can start saving for retirement, do it—but only if you are financially ready. This means that you’ve paid all your debts and are ready to start making regular contributions toward your “nest egg.”
Let’s take a look at some of your options for retirement savings:
Registered Retirement Savings Plan (RRSP)
A recent Royal Bank of Canada poll found that 43 percent of Canadians aged 18 to 34 hold RRSPs. An RRSP is a Canadian account that holds savings and investment assets. The types of assets you can have in your plan include mutual funds, bonds, savings accounts, mortgage loans, shares and income trusts. If you file taxes and have income, you can contribute to this plan. Financial planners recommend that young people with summer jobs file tax returns in order to generate contribution room (even if you file them later).
One of the tax advantages of opening an RRSP is that the money you make on your investments is not taxed. There are several places you can open a RRSP, including banks, mutual fund companies, insurance companies and credit unions.
Tax-Free Savings Account (TFSA)
A TFSA is a type of registered investment account that earn interests and other kinds of investment income without being taxed. Canadian residents who are at least 18 years old can contribute up to $5,000 to this account every year. Many financial experts recommend contributing to both an RRSP and TFSA. A TFSA is more flexible than an RRSP since you can withdraw from the account at any time without any tax consequences.
If you need help deciding what type of retirement plan to choose, contact a financial services company like La Capitale for assistance. The financial planners on their staff can give you expert advice on building a retirement plan that’s right for you.