With this year’s RRSP contribution deadline looming (March 2, 2020), retirement savings may be on your mind more than usual.
“Are you saving for retirement”? It’s a question you’ve probably been asked many times, from parents, partners or financial advisors, and even by friends. While saving money is likely on your mind in general, each year as Canadians approach tax season and the annual RRSP (Registered Retirement Savings Plan) contribution deadlines, retirement savings often come to the forefront.
It’s the golden question, and one that’s not so simple to answer. When considering retirement income, you may want to factor in the rising cost of living, your retirement goals and how much money you need for current expenses in addition to retirement savings.
Here are a few steps you can take to help you decide how much money you want to be saving toward retirement:
If you’re early in your career or you love working, you may not have given much thought to when you want to retire – but it matters when it comes to your retirement savings. On average, Canadians tend to retire just before they turn 65 (according to Stats Canada, the average age of retirement in 2019 was 64.3). Why does this matter for your savings? Because the average life expectancy for Canadians is on the rise; it’s currently 82, and continues to climb. So, the earlier you plan to retire, the longer you’ll need your money to last; the longer you work, the less savings you’ll need.
What does retirement look like to you? Will you stay in your house or apartment, or move somewhere that’s less expensive to maintain? Will you rent or own? Do you have a mortgage or car payments, or will your debts be paid off by the time you retire? What about travel?
Not only will these questions help you consider the expenses you’ll have in retirement (household, entertainment, debts, travel, etc.), but they can also help you decide how much money you’ll need on hand each month when you’re done working.
- Employer-Sponsored Pension Plans – your workplace may offer a pension plan, most likely a “Defined Benefit” or “Defined Contribution” pension plan, which is designed to provide an income for you after retirement. Your employer may contribute to your pension, making it an attractive way for you to save money.
- Registered Retirement Savings Plans (RRSPs) – an RRSP is a retirement savings plan that you create and then is registered by the government. Contributions to an RRSP can be used to reduce the amount of taxes you owe, and income is usually tax-exempt as long as the funds remain in the plan. Read more about RRSPs on our blog here.
- Savings Accounts – any accounts you have, from a Tax-Free Savings Account to a simple savings account at your financial institution, can be used to support you financially during retirement.
Once you’ve considered the information above, visit the Government of Canada’s Retirement Income Calculator to find out how achievable your goal retirement income is. Feel free to go back and forth on the calculator, tweaking contributions and savings amounts to help you determine how best to save for retirement.
Whether retirement is coming up soon for you or is still on the distant horizon, it’s never too early to understand your retirement income sources and how your goals should be factored into retirement savings. Each year the RRSP deadline offers us the opportunity to reflect on our plans for retirement, but don’t forget to maintain a balanced budget that helps you save for current expenses (planned and unexpected) as well. Your future self will thank you if you are able to pay down debts and enter retirement with simplified finances.
- How much you need to save for retirement depends on your retirement goals, including retirement age and lifestyle
- There are already some funds set up to support you during retirement, including the Canada Pension Plan (CPP) , Old Age Security (OAS), and possibly the Guaranteed Income Supplement (GIS)
- All savings, whether designated as retirement savings or not, can be used to support you financially during retirement
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