With most Canadians retiring when they’re around 63, it can be challenging to know when and how to start saving money. You might not know how much you need to set aside for your retirement so you can live comfortably. The answers to those questions depend heavily on what type of lifestyle you want to have when you retire. At Tekaloan, we believe it’s never too early to start planning for your retirement.
However, don’t be dismayed if you’re farther along in your career and don’t have a retirement plan in place yet. You can prepare for the future no matter how old you are.
This guide will discuss the best ways to save for retirement. Enjoy your later years in life without being burdened by having to work.
When Should I Start Saving Retirement Money?
The first thing you need to figure out is how old you want to be when you retire. As we said earlier, the average retirement age in Canada is 63. However, there’s no hard and fast rule regarding retirement age.
Many people might want to retire later in life, around the age of 70. You might want to retire when you turn 60. Whatever age you decide to retire is a personal choice.
Your retirement age will determine when you should start saving. It’ll also affect how much money you need to save.
How Much Money Do I Need to Save?
You can figure out how much you need to save once you’ve determined your retirement timeline. Some factors that’ll affect how much money you want to save include:
- Your life expectancy
- Your projected living expenses
- Additional resources like long-term care and health insurance
- Your lifestyle
- Your property
One good way to decide how much you save each month is to look at your net income. Take 10% of that each month to put toward your retirement plan.
When Should I Start Saving?
Starting to save money for retirement early in life means you don’t have to save as much. Beginning to put aside retirement money when you’re older means you’ll have to save more each month to meet your goal.
For example, imagine that you plan on retiring in 20 years. You want to have $75,000 set aside for retirement. Your retirement account will earn a yearly interest rate of 5% which compounds your savings.
You’ll need to save around $180 each month if you plan on retiring in 20 years. If you wanted to retire in $10 years, you’d have to save around $480.
Ways to Save for Retirement in Canada
There are two different accounts that the Canadian government offers to help you prepare for retirement. These are designed to ease a small amount of the tax burden on the money.
Registered Retirement Savings Plan (RRSP)
An RRSP is a registered savings account that you register with the federal government. This is specifically for retirement contributions.
One of the things to keep in mind with an RRSP is that the money is “tax-advantaged.” This means that your funds are exempt from getting taxed in the year you contributed.
Additionally, any investment that you make from investments in the RRSP can be tax-deferred until you withdraw the money. The caveat is that the money has to stay in the RRSP.
Contributions to your RRSP are tax-deductible. You can deduct them from your current year’s tax return. This could potentially lower how much you pay in taxes.
The contribution limit for an RRSP is 18% of your earned income for that calendar year.
Tax-Free Savings Accounts (TFSA)
The TFSA program began in Canada in 2009. Canadian residents with a social insurance number (SIN) and who are over 18 years old can save money for retirement with these accounts.
Some features of TFSAs you should keep in mind include:
- Not tax-deductible
- Investments can include bonds, stocks, cash, and mutual funds
- Can withdraw funds without paying taxes
- You don’t have to report any withdrawals as income
- The maximum contribution amount is determined each year
You can keep your TFSA if you become a resident of another country. You won’t have to pay taxes in Canada if you withdraw money from it. If you make contributions to the account while being a non-resident, you’ll have to pay 1% each month.
There are numerous benefits to opening a TFSA. They are:
- Tax-free growth
- Increased flexibility
- Pair a TFSA with an RRSP to maximize your possibilities
Tips for Saving Retirement Money
You can save money for your retirement no matter how much income you make. Some people might think they can’t save for retirement if they’re struggling to make ends meet. Here are some tips to help you prepare.
Stick to Your Budget
Creating a plan for your money each month shows you how much you have and where it needs to go. You have more control over your finances. This enables you to make decisions that’ll benefit you in the future.
Some ways you can create a financial plan include:
- Compile your sources of income
- Add up your fixed expenses
- Include retirement contributions in that list
Make saving for retirement a key part of your monthly budget. This will show you how much you can realistically save each month. This will also assist you when determining at what age you can retire.
Find Employment With Retirement Benefits
Consider looking for another position that offers good retirement benefits. Some employers offer retirement plans where they’ll match your contributions. Make sure you’re participating in this if your workplace offers it.
You should also have a separate savings account for your retirement funds. Even though your contributions won’t get matched, any money you can save will benefit you in the long run.
Get More Financial Advice and Installment Loans From Tekaloan
It’s never too early or late to start getting ready for retirement. Planning for the future ensures you and your loved ones are comfortable and taken care of. Doing your proper research will ensure you take the best steps to save money.
Tekaloan is a leading provider of financial advice and online loans in Canada. We make applying and getting approved for a Teka loan quick and painless. Contact us or head to Tekaloan.com to learn more about our fast loans.