When should I start planning for retirement?

If you're just entering the workforce, retirement may seem like a lifetime away. You’re probably focused on advancing your career, paying off your student loans, and eventually getting a place of your own. These are totally valid priorities, but planning early for retirement is also important. By starting now, you give yourself the advantage of time to build up your savings.

Unsure how to get started contributing to things like a registered retirement savings plan (RRSP) and tax-free savings account (TFSA), while also trying to meet those short-and medium-term goals? Follow the four tips below to get started on your retirement savings journey. 

When you’re focused on showing up on time and making a good impression, retirement may be the last thing on your mind. However, when it comes to saving for retirement, the sooner you start, the more time your money has to grow and benefit from compound growth, or earning interest on the interest you make. If you wait even just five years before you start investing for retirement, the amount you'd need to regularly invest could increase exponentially.

Many employers offer benefits that help you save for retirement through RRSP or pension contributions. Make sure to take advantage of those and set up automatic contributions from your paycheque if the company offers to match your contributions. Even if your employer doesn't offer contributions, you can set up an RRSP yourself and start putting money aside every paycheque to make saving for retirement automatic.

Ready to start retirement planning? Let us walk you through it

You can't start planning for retirement if you don't know what you want it to look like. Let yourself envision your ideal post-retirement future. What hobbies or interests might you want to pursue? What parts of the world can you imagine yourself exploring? Setting these goals now may help you determine how much retirement income you’ll need, your planned retirement age, and your broader financial plan. This can be hard to gauge if you're in the early stages of your career, but imagining what your retirement might look like could motivate you to save for it. Share your vision with a Scotia advisor so they can help you come up with a plan that includes Pre-Authorized Contributions (PAC) to start building up your savings for your short- and long-term goals

Now that you’ve pictured your retirement, it’s time to set up the right investment accounts.

An RRSP is a saving plan that you can contribute to throughout your working life. It can hold a variety of different savings and investing options, from cash to Guaranteed Investment Certificates (GICs) to mutual funds.

Contributions into an RRSP are tax-deductible, meaning the money you pay into your RRSP is taken away from your taxable annual income amount, which then reduces the tax you pay on your current income. When you withdraw from your RRSP, the withdrawal will be taxed (with some exceptions, like if you use it to buy your first home).

A TFSA is a relatively new investment vehicle that was introduced in 2009. It can be used to save towards retirement, but also many other goals because, unlike an RRSP, you’re free to withdraw at any time without penalties. The main benefit of a TFSA is that they are completely tax free. Since you’ve already been taxed on the money you put into your TFSA, any income you earn from the investments within your TFSA is completely tax free, even when you withdraw from it.

Both TFSAs and RRSPs have annual contribution limits, so having both gives you more flexibility in your planning.

The amount you over-contribute towards a TFSA will be subject to a penalty of 1% per month. This is only on the over-contribution amount. For an RRSP account,  you can exceed the contribution limit by $2,000 without penalty, after which a penalty of 1% per month will apply.

It's important to factor government benefits into your retirement plan, too. Those include the Government of Canada's Guaranteed Income Supplement (GIS), Old Age Security (OAS) and the Canada Pension Plan (CPP).

It’s time to start contributing regularly to your retirement plan. It can seem difficult if you have other big life-changing events on the horizon, like paying for a wedding, buying a car or purchasing a home. No amount is too small – even $25 a month will add up, and of course, you can always increase that amount as your income grows.

With Pre-Authorized Contributions (PACs), you choose the amount you’d like to contribute and how often – for instance weekly, biweekly or monthly. That amount you select will be automatically deducted from your personal banking account and deposited into your investment account. The beauty of a PAC is that it’s automatic. Once it’s set up, you’ll be saving money without even thinking about it. Even small amounts saved regularly can add up over time. When your cash flow improves, you can then decide how much you can increase your contribution. 

You have taken the most important first steps, but you also want to periodically monitor your accounts and overall financial plan to make sure you stay on track. As you get older and your income changes, you’ll need to re-evaluate how much you’re contributing towards your retirement. It’s wise to check in annually or semi-annually, and your advisor can help you figure out if you need to make any changes to your plan.

Want to figure out when to start planning for retirement and how much you'll have based on how much you contribute? Our Retirement Savings Calculator is a good tool to help you estimate your future net worth. It can show you how contributing different regular amounts towards your savings will impact your retirement savings growth.

While a retirement savings calculator is a good place to start imagining your future nest egg, speaking with an advisor from your bank is always a good idea when it comes to financial planning for retirement. An advisor will work with you to create a personalized financial plan to help you achieve your ideal retirement.