When to start saving for retirement? Now.

Your retirement may be years, or even decades, away—but the sooner you start saving money, the better prepared you’ll be for the future you have in mind.

Start saving for retirement today

If your employer offers you a group savings plan, it’s one of the best ways to save for retirement. 

  • You can put money into the plan straight from your paycheque.
  • Your employer may even match all or part of your contribution, giving your savings a real boost.

The important thing is to start today. When you invest your money in a retirement savings plan, you can benefit from compounding interest, which means that it can earn interest, and that interest can earn interest, and so on, which can really add up over time. 

If you were to contribute $3,000 to your plan each year starting at age 25, you could have close to $400,000 by the time you’re 65, assuming your investments earn an annual return of 5%. If you don’t start saving that money until you’re 35, the amount you’d have at retirement is cut almost in half, and it’s another 50% reduction if you don’t start until age 45. 

The earlier you start saving, the more time your money has to grow

This is a hypothetical illustration only, and there are no guarantees that the results shown will be achieved or maintained over any time period. It assumes no withdrawals and does not take into account any fees associated with the investment.

How much should you be saving for retirement?

The amount you should save for retirement depends on you. What do you want to do in retirement, and where do you want to live? Just keep in mind that if you live into your 80s and 90s, depending on when you plan to stop working, your retirement could last 20 or 30 years. And the amount you save before you retire is what you’ll need to rely on to live throughout your retirement. 

To figure out how much you need to save for retirement, you may want to start by looking at your spending today; it’s a good starting point for how much you’ll need to spend in retirement. Of course, some of your current expenses will go away—like commuting expenses—and you’ll get some new ones, which will depend on what you plan to do in retirement. 

Now think about how your life will be different and how that will change your spending. A helpful way of looking at your expenses is to break them into two categories: basics and nonessentials.

  • Basics are the things you can’t live without, such as groceries, housing, transportation, gas, heat, and insurance. The price of many basics will depend on where you plan to live in retirement—so if you plan to move, find out the difference in the cost of living. 
  • Nonessentials are the fun stuff—what you’ll do in retirement, such as eating out more, joining a club, or spending money on hobbies, entertainment, and other leisure activities.

Depending on when you plan to retire, you may need to save enough to keep up your lifestyle for 20 to 30 years. Are you saving enough to be able to afford the life you want in retirement, or should you save a little more in your workplace savings plan now to give it time to grow as well?

There’s no time like the present to save for your future

So get started as soon as possible. Consider choosing a higher contribution percentage to get more earning power from the start, and try increasing your contribution by 1% every year. If you increase it at the same time as your annual raise in compensation, you may not even notice the extra 1% you’re saving today, but you’ll thank yourself in retirement.

The commentary in this publication is for general information only and should not be considered legal, financial, or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.