**This is a sponsored post written by me on behalf of the Financial Services Commission of Ontario. All opinions are my own.
I hate to generalize, but it seems like not many Millennials are saving for retirement. This likely won’t surprise my fellow Millennials since many of us are dealing with student debt, a high cost of living, and salaries that are lower than what our parents ever made. But as someone who started saving early for retirement, I can’t stress how important it is for Millennials to start saving for their retirement.
Listen, I get it, saving for the future sounds impossible when you’re dealing with financial burdens that affect you now, but it can be surprisingly easy to start saving when you have the right incentives and a plan in place to get you on track for retirement.
Why Millennials should be saving for retirement now
Besides other money priorities that we may have, some Millennials just aren’t interested in saving for their retirement because they would rather enjoy life now. Taking an epic trip across Europe with friends or getting all the latest gadgets definitely sounds more fun than investing in your RRSP, but it’s all about moderation.
Have fun, but always have an eye towards the future. Still not convinced that retirement savings should be a priority? Here are a few reasons why you should start saving now.
You may be retired for almost as long as you work – It’s crazy to think that you’ll be retired for almost as long as you’ll be working, but the life expectancy in Canada keeps going up and many people are choosing to retire before the age of 65. When you add those two up, you’ll quickly realize you need your money to last a long time! Saving early will help ensure your money lasts through your retirement.
To live comfortably you’ll need a lot of money – Many people assume that once you retire you won’t have many expenses which might be true, but will you really have enough money for the lifestyle you want in retirement? Think about the things you enjoy now, the odds are you’ll love the same things when you’re older. Heck, once you retire, you may have even more time to do the things you enjoy which is why you want to ensure you have the savings to pay for the retirement lifestyle you want. Generally speaking, you’ll need 50-70% of your current income at retirement to maintain your lifestyle. You’ll also need to factor in how many years you’ll be retired which is roughly 25 years.
The Canada Pension Plan is not enough – As Canadians, we’re fortunate to have the Canada Pension Plan (CPP), but it was never intended to fund our entire retirement. Currently (2018), the maximum payout is $1,134.17/month at age 65, but keep in mind that very few people actually get the maximum. This is a decent amount to help supplement your retirement savings, but you still need to set aside your own money to ensure you reach your retirement goals.
How to start saving for retirement
Many Millennials want to start saving for retirement, but they really have no clue where to begin. Personal finance isn’t exactly a topic they teach in school and it tends not to be something that’s talked about in the media. With these tips, saving will be easy.
Create a budget – To do this I suggest you track your expenses for a month or two so you know exactly what you’re spending your money on. With this info available, you can create a realistic budget. Take a look at your income and now subtract all your expenses. Budgets constantly change, but if you add saving for retirement as one of your expenses, you’re ensuring that you’re paying yourself first.
Automate your savings – With that budget in place, set up automatic withdrawals from your bank account which go right into your Registered Retirement Savings Plan (RRSP) or other retirement savings. Ideally, you want these withdrawals to take place right after you get paid so you never notice the money missing. Don’t forget to invest that money so it can grow over the course of your working years.
Take advantage of workplace benefits – If your employer offers you a pension (more on these later), make sure you sign up as soon as you can. I didn’t join my workplace pension plan for seven years which likely cost me $70,000! Pensions are essentially free money since your employer also contributes and who doesn’t like free money? Some employers may also offer a group retirement saving plan or an employee stock plan, if you have access to one of those, you should take advantage of it. Each of these employee benefits usually has different rules and payouts, so it’s best to talk to the benefits administrator who can explain to you how to maximize your money.
Take advantage of what is available to you
Saving money is great, but simply putting it into a bank account isn’t good enough. You need your money to grow. Fortunately, there are quite a few things that can help you put your hard earned (and saved) money to work.
Find a job with a pension plan – I know that pensions are becoming increasingly rare, but having access to a job with a pension can pay off big in the long run. For example, let’s say you have two job offers. One that pays you $42K but has no pension while the other has a base pay of $40K and a defined contribution pension where your employer matches your contribution of 3% of your salary. You’d pretty much break even for the first few years, but in the long run, you would come out ahead if you took the job with the pension plan. Now let’s say that employer matched your contributions at 5% of salary. Well, you would come out ahead by the end of year one compared to the job with no pension, but higher pay. Workplace pensions can make a huge difference, so make sure you understand how they work if you have access to one.
Use your RRSP and TFSA – Registered Retirement Savings Plans (RRSP) and Tax-Free Savings Accounts (TFSA) are two types of accounts that will help your money grow. With RRSPs, you get a tax break when you make contributions. Income or capital gains earned in an RRSP are not taxed, but withdrawals are taxed. TFSAs don’t give you a tax break when you contribute, but any income or capital gains you make within the account are tax-free, as are all withdrawals. I’m obviously simplifying the benefits between RRSPs and TFSAs so make sure you read up on them so you know how they can work for your individual situation.
Talk to a financial advisor – Even though I manage my own money, I still talk to a financial advisor on a regular basis to ensure I’m on track. Finding a good financial advisor is the tricky part since many of them are just trained to sell company products. The good thing is, there are quite a few resources out there to help you find a good advisor. There are advisors who specialize in retirement planning so in this case find one of those. In the end, you’re looking for someone who can answer your questions and is upfront about how they get paid so there’s no conflict of interest.
Online retirement tools – The Financial Services Commission of Ontario has links to online retirement tools such as an income calculator, retirement budget worksheets, pension calculators, and more. They also have links to useful information such as how CPP works, how much you could get from the Old Age Security Program (OAS), and more. These resources won’t help fund your retirement, but it’ll help you plan accordingly.
Saving for retirement may not sound very fun, but it’s one of the best things you can do since you’re investing in yourself. By taking the time to educate yourself about your finances and saving now, you’ll reap the benefits throughout your life. Learn more about how to do this by visiting the Financial Services Commission of Ontario’s retirement planning website.