It’s never too early or too late to begin your retirement plan.

Many people look forward to the day when they can finally retire. However, very few consider retirement planning in their early 20s or 30s. This is often due to having to pay off student loans, credit card debt and living expenses. This leads individuals to believe that they need more money before they can start contributing to a savings account. There are many benefits to starting saving for retirement early, but it is also important to remember that it’s never too late to reach your financial goals.

Retirement plans can seem daunting, but with the right advice and professional guidance, the process can be quite seamless. Here is everything you need to know about retirement planning, including when and how to begin and other key takeaways.


Retirement Planning Is Guided By Your Retirement Goals


Before you begin saving and trying to decide how much money to set aside, you need to first come up with a retirement planning guide.

For most people, the closest thing that they have to a retirement plan is an idea of how they would like to pass the time while retired. Some want to spend time with their children and grandchildren, others want to travel, and most people simply want to enjoy their golden years with minimal stress and financial worries. While these are good launching points, you should understand how these goals will impact your own money.

A key component in deciding when to start saving is to determine your goals for retirement. This will determine how much money you need to save and when to begin.

For example, people who want to spend time travelling the world during their retirement will likely need to have much more saved than those who do not. This is because there will be extra costs associated with travel, accommodations, food and attractions alongside other mundane financial costs. The higher costs associated with this retirement lifestyle will likely mean that you need to start saving earlier and accumulate more savings prior to retiring.


Retirement Planning Involves Contributing To A Retirement Fund

New In Canada, one of the best tools you can set up yourself is a registered retirement savings plan (RRSP). The number one reason why financial advisors recommend you start saving early is that it gives you a head start on your retirement fund.

If a person were to begin working at the age of 25 and invest $250 a month ($3,000 a year) into a tax-deferred retirement account until age 45, that individual has a great deal saved by the time they are 65. How so?

Well, by the time the person reaches 65, their investment will have grown to approximately $506,895. This is assuming a 7% annual return. 

If you begin pursuing your savings goals a few years later, it will have an impact on the results. For example, you can consider retirement savings after the age of 35 and invest $250 a month for the next 30 years. By 65, your investment will have grown to $306,771 with a 7% annual return. That is the value of starting early and the impact of compounded growth.

Neither is enough to retire on, but it is a good start. It’s also important to remember that your retirement money will be taxed after it is taken out of your retirement account, so you will need to account for that loss.

Alongside its benefits to your future, RRSPs also offer tax benefits that you can take advantage of now. Maximizing your RRSP contributions can lower your taxable income while your retirement funds grow tax-deferred.


Grow Your Retirement Savings With Investment Accounts

While we should start planning for retirement early, unexpected costs can arise and easily derail our saving habits. It’s a common occurrence and it shouldn’t dissuade you from pursuing your goals for retirement. Investment accounts are financial institution-led savings to help you grow your money with minimal effort.

Exchange Traded Funds (ETFs), mutual funds and Guaranteed Investment Certificates (GICs) are some of the many ways to grow your wealth. For most Canadians, they choose to trust a finance professional to manage the investments, allowing you to sit back and earn money without worry.

Before investing, assess your risk tolerance versus your investment goals. Are you willing to risk fluctuations in your savings for possibly high returns in a short period of time? Or do you prefer knowing your wealth is slowly and steadily accumulating over a long period of time? Discuss your goals with a financial planner and determine what the best investment is best for you.



You Don’t Need To Do All Of The Saving Yourself

While your retirement plan is the most valuable asset to saving for life after work, your pension plays a significant role in your finances.

Everyone who is over the age of 18 and makes at least $3,500 per year is required to contribute to their Canadian Pension Plan (CPP), a pension the Government of Canada establishes in your name. If you are employed, your employer will deduct your contributions to your CPP from your salary. Your employer is also required to make contributions to your CPP, as well. The contributions from you and your employer match to grow your pension until you are ready to cash out.

Retirement accounts are different from a pension plan, but having both will ensure that you’re prepared for any unexpected expenses in the future.


Prepare For The Rest of Your Life & What Comes After

While we like to prepare for having a long life, life expectancy is always uncertain. Death is a guarantee and it can happen at any time. An estate plan and life insurance are an important part of your plan for life after work. They outline the distribution of assets and who has a legitimate interest in your estate following your death.

While you want to make sure that you sit down with a Wills and Estate lawyer to create your will, be sure to talk with your financial planner about it as well. They will be able to help you mitigate some of the taxes that will be owed when your estate transitions to the next generation.


Personal Finance Is Important

It is recommended to save for life after work as soon as possible in order to meet your retirement goals. Early retirement planning and saving will ensure that you have sufficient funds saved for the lifestyle that you want to live.