Establish a retirement savings plan that’s tailored to your life stage

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It’s a mistake to view retirement as a single event. It’s fluid, marked by shifts in activity levels and health status.

Likewise, your retirement savings process needs to reflect where you are in life – your income level, age, family status, and whether or not you’re paying the mortgage on your home.

Starting out

People just entering the working world often think they can’t afford to save for retirement. And they may not be wrong. Life’s expensive. Rent, car payments, food bills, commuting costs and everything else that goes into getting yourself established eats up a lot of your paycheque.

There’s seldom much left for savings – unless you choose not to have a social life.

Still, savings have to start somewhere and most financial advisors suggest that even a modest 2% or 5% off your bi-weekly paycheque can add up – especially since retirement is a long way away and you’ll get the benefits of interest compounding and the returns from having money invested for a long time.

If your employer offers a defined contribution pension, it can be easy and relatively painless to start saving. If you never see the money the pension deducts off your paycheque, you won’t miss it when you plan a household budget based on your take-home pay.

Alternatively, many financial institutions offer savings and investment plans that make automatic withdrawals to fund future goals. Chat with a qualified financial advisor about how one of these might make it easier for you to start saving early.

Building income

As you move up the salary curve, it may be a good time to increase your savings. At this point, financial planners typically suggest at least 5% of your income should be set aside for retirement (and look into the various savings vehicles, like RRSPs and TFSAs, that shelter investment gains from tax until you withdraw the money).

As your income continues to climb, planners might suggest raising how much you set aside by one percent each year – until you’re saving at least 10% annually for the future.

This can be hard to do, because it comes at time when housing expenses, including your mortgage and home maintenance, as well as childcare and saving for your kids’ educations, tend to take precedence.

But, if you can establish a savings discipline without letting those other costs overwhelm your budget, it will help you in the long run.

Peak income

Most people find their incomes hit a peak sometime during their mid-40s or early 50s.

For many, this is also a time when long-running family expenses start to ease. You may have paid off your mortgage, and one or more children may have graduated university, leaving you with more room to save income.

On the downside, you may also be finding your older parents are discovering financial needs for which they did not plan, and are asking you to help out.

Still, if you can balance those priorities, this peak earnings period represents your best opportunity to top up your retirement savings.

Planners often urge their clients to allocate 20% or more of their incomes towards retirement during this 15- to 20-year window as a way of ensuring they’ll have a bit more disposable income in retirement.

CPP Investment Board, Investing Today for Your Tomorrow.

The content on this site is provided for information purposes only. CPPIB is not a financial advisor, and the content on this site does not provide financial advice. Every person’s financial planning needs are different. For advice on how you should prepare financially for retirement, please consult a credentialed professional financial advisor.
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