When Should Retirement Planning Begin? (And How to Save for Retirement)
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Here’s a story to illustrate the importance of saving for retirement early…
A friend of mine, let’s call her Georgia, had just graduated from college and landed her first job as a marketing assistant.
She was excited about her new career but worried about her financial future, as any 20-something is.
Georgia had heard about the importance of retirement savings, but most young adults had no idea where to start.
One day, Georgia’s co-worker, Jack, noticed her looking at retirement savings calculators on her computer during lunch.
Jack had been saving for retirement for several years and offered to share his knowledge with Georgia.
"Saving for retirement is important, but it's also easier than you think," Jack said. "The key is to start early and be consistent."
Jack explained that Georgia should start by creating a retirement plan. She should determine her retirement goals and estimate her retirement expenses.
Jack also suggested that Georgia consider contributing to a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA).
Although she appreciated Jack’s advice, Georgia had convinced herself that she didn’t need to start in her 20s, had lots of time, and would begin when she turned 30.
Her 30th birthday came and went, and she didn’t start saving.
There was a wedding she needed to pay for, children and their education savings to plan for, and she had just bought her first house with her partner.
Things were exciting, and she thought putting a little bit in her TFSA every month would be enough.
She just turned 50 and came to us looking for advice.
She had told me about Jack's advice all those years ago and wanted to start saving.
The problem was not that she had started saving ‘too late’; she wanted to retire ‘too early.’
Georgia hadn’t planned to retire at 65; rather, she planned to start saving at 50.
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Jack told her, "If you regularly contribute to your RRSP or TFSA, your savings will grow over time," "You'll also benefit from the power of compounding, which means your savings will earn interest on interest."
This was true, but the key to compounding is time, and rather than having 40 years, she only has 20 now.
Nevertheless, she decided to take action even if she had to work a few more years than she anticipated.
We created a retirement plan, set up automatic contributions to her RRSP, and diversified her investments to manage risk.
Over time, Georgia’s retirement savings grew, and she felt more confident about her financial future.
Retirement planning should ideally begin as early as possible, even as soon as you start earning an income.
As we touched on earlier, the key to compounding is time.
The earlier you start investing, the more time you have for your money to grow exponentially.
Here are some tips on how to save for retirement
Start with a personalized retirement plan
The first step in saving for retirement is to create a plan. Determine your retirement goals, estimate your retirement expenses, and calculate how much you need to keep to achieve your goals. Please reach out if you need help with your plan.
Set up automatic contributions
Consider setting up automatic contributions to your retirement account, such as a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). This ensures that you consistently contribute to your retirement savings, even if you forget to do so manually.
Maximize your contributions
If you have the financial capacity to do so, maximize your contributions to your RRSP or TFSA. Contributing the maximum amount each year can help you achieve your retirement goals more quickly.
Consider employer contributions
If your employer offers a pension plan or a matching contribution to your RRSP or TFSA, take advantage of these benefits. This can help boost your retirement savings even further.
Diversify your investments
Diversifying your investments can help manage risk and potentially increase returns. Consider investing in a mix of stocks, bonds, and mutual funds to help balance your portfolio. It’s essential to have a financial advisor help with this.
Reach out if you want to start investing in specific funds, as we can recommend risk-averse funds that fit your goals.
Review and adjust your plan regularly
As you progress towards retirement, review your retirement plan regularly and make adjustments as needed. Factors such as market fluctuations, changes in your circumstances, and unexpected expenses may impact your retirement plan.
By starting early and following these tips, you can establish a solid retirement plan and take steps toward achieving a comfortable retirement.
Georgia didn’t fully understand that you need to work backwards.
You don’t plan when you save; you save and plan when to retire. This saves you from not having a retirement.
If you need any support with your personalized retirement plan, please reach out, and we can sit down. The key is starting early, sooo… the millennials and Gen Z reading this, reach out and we can talk about your goals and get you started.
It doesn't have to be much. Even a little is extremely beneficial.