You know it’s important to plan for retirement—but how much do you need to save before you retire?
“It depends on what you’re looking to do once you retire,” says Toyin Ladapo, Financial Advisor at Cambrian and Aviso Wealth.
“Typically, you’ll need 70-80% of your current salary in retirement.”
Today, we’re going to take a closer look at when you should start saving for retirement:
The earlier you get started on your retirement plan, the better. Why? Because it gives your money more time to earn compound interest.
Just how much more can you make? Check out NEI’s Advantage of Starting Early calculator!
Even small contributions add up over time. Look at how much more you’d earn if you start saving at age 25 vs age 35:
You could earn $168,237 more through the power of compound interest. That means you don’t need to contribute as much to your retirement savings in the long run.
“On top of that, it gives you peace of mind. Since you started saving early, you won’t have to worry about it closer to retirement,” explains Toyin.
We suggest you start saving as soon as you can afford to! This will give you the maximum amount of time to take advantage of compounding returns.
For some, that may be age 25—for others, age 30. And even if you’re past that age, don’t worry. It’s never too late to start saving!
So, as you save for retirement, where should you put your money?
We recommend opening an RRSP; it’s a registered savings account that gives you a tax break for your retirement contributions.
You can also invest the money you contribute to the account, which stretches your dollar even further!
You’ll get a tax break for your RRSP contributions, and you can generate income from your investments. It’s a win-win.
“Think of an RRSP as a tax deferment tool that allows you to pay less taxes during your highest earning years,” says Toyin.
“Since your income in retirement is typically lower than your peak earning years, it will be taxed at a lower rate.”
Let’s look at how much you can save by contributing to an RRSP:
First, open NEI’s RRSP tax savings calculator. Enter the contributions you plan to make this year, along with your expected annual income.
Then, see how much you could save on taxes by putting those contributions into your RRSP:
Keep in mind that the money you contribute will be taxed upon withdrawal—but since you’ll likely be in a lower tax bracket once you retire, you’ll pay less than you would have today.
Tax tip: When you file your taxes and get a tax break for your RRSP contributions, don’t spend the money—invest it back into your RRSP!
You’ve decided to start making RRSP contributions part of your budget. But just how much money do you need to set aside? Here’s how to answer that question:
There’s no one-size-fits-all for retirement planning—it depends on what you want to do after you retire and the lifestyle you want to have.
To figure out how much you’ll need, ask yourself the following:
“When you meet with an advisor, we’ll consider all the income sources you may have,” says Toyin.
That includes:
Along with your personal savings, you can tap into government benefits to supplement your income.
The amount you’ll receive varies based on how much you contribute during your working years and your income.
Keep in mind that to receive some of these benefits, you must apply for them—typically several months ahead of your retirement date.
The CPP is a benefit you can receive each month after you turn 60.
To receive CPP, you must contribute to it. How? It’s usually done automatically.
Every time you receive a paycheque, you and your employer pay into CPP. And if you’re self-employed, you pay the employee and employer portion of your CPP contributions.
The amount you receive is based on your earnings during your working years and the age at which you start claiming the benefit.
The earliest you can start receiving CPP is when you’re 60 years old—but if you wait until you’re 70, you’ll get a higher CPP payout.
You can start receiving OAS payments once you’re 65 or older. Just like CPP, you can get higher OAS payments if you wait until you’re older to start receiving it.
The amount you get is based on your income and how long you’ve lived in Canada after turning 18.
This monthly benefit is specifically for low-income older adults. Unlike the other 2 benefits, it’s not taxable. How much you receive depends on your income and whether you have a spouse.
Understanding these different income streams allows you to see what you’ll be making post-retirement—and determine whether you need to save more to maintain your lifestyle.
A Cambrian and Aviso Wealth Advisor can put together a retirement plan that makes sense for you.
“When you meet with an advisor, we’ll ask questions to fully understand your lifestyle, retirement needs, and financial situation,” says Toyin.
“Then, we can align your savings plan with your retirement goals.”
Whether you want to start investing or set up regular contributions to your RRSP, we’ve got you covered. Book a meeting today!
Disclaimer:
Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc.
We would be happy to discuss your unique situation with you.
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