In study after study, retired people tell us they wish they had started saving and planning for retirement sooner. But how do you making saving a priority when there are so many other things to do with your money? Today, I’m going back in time to give some retirement savings advice to my younger self.
This post was originally published in June 2020 and updated in March 2023.
It’s never too late to adopt good money habits. If you’re closer to retirement, it’s a good time to start thinking about how you’ll spend your time. Check out Retire Retirement! Plan Your Best Years Now! for tips on how to create your best life.
Learn from my mistakes
When I was in my early 20s, I had the opportunity to join my company pension plan. At the time, I was single and barely making ends meet. Like many other people my age, I decided I could better use the money for other things.
Young people today are dealing with even more financial pressures than I was. High levels of student debt, combined with ever-increasing housing costs in many urban areas, leaves little money for saving.
I often think back on my own experience and what I wish someone had told me about saving for retirement when I started my first full-time job. If I could sit down over a cup of tea with my younger self making this decision, here’s what I would say.
Disclaimer: I’m not a financial advisor. Everyone’s situation is different. If you need help with your money, find a qualified financial advisor.
Retirement savings advice to my younger self
The best time to start is now
Retirement may seem a long way away, and you might even be wondering if you’ll ever retire. You’ll be surprised by how quickly the time flies. If you wait 10 years before starting to save, you will need to save a lot more to make up for that lost time. And, in 10 years, you may have other obligations like a mortgage and kids that will make it even harder to find the money to save.
Let’s look at how waiting 10 years will impact your savings.
You’re 25. Let’s say you start now by saving $1,000 at the beginning of every year. After 40 years, at a 6% rate of return, that $1,000 a year will grow to about $165,000.
On the other hand, if you wait until you’re 35 to start saving and save the same $1,000 each year until you’re 65, it will amount to about $85,000.
By starting 10 years earlier, you’ll have almost twice as much saved when you turn 65.
You won’t miss the money
You might think you can’t afford to put money into a retirement plan. If you’re starting a new job and join the plan right away, you won’t miss the money because you’ll immediately adjust to your new take-home pay.
If you’re already working and looking to start saving, look at your spending to see how you can free up money to save. Maybe that means one less take-out coffee a day, bringing lunch to work rather than going out, or one less drink on a Friday night. Wherever you find space to cut back, future-you will thank you!
You can save money on taxes right away
In Canada, saving for your future in a registered plan means you’ll pay less tax now. If you put money into your company plan by payroll deduction, your employer can reduce the taxes you pay immediately. This means more money in your pocket today, instead of waiting for a tax refund at the end of the year.
As an example, if you live in Ontario and earn $40,000 a year, a $100 monthly contribution to your pension plan only reduces your take-home pay by about $80.
To get an idea of the tax savings, check out this cool calculator from EY.
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Always take full advantage of employer contributions
If your employer offered you a raise, you wouldn’t turn it down, right?
If you don’t join a plan that has employer contributions, that’s exactly what you’re doing. You’re turning down free money. It’s like saying no to a raise.
If your plan offers an employer-matching formula, do everything you can to take full advantage of the match. It’s an instant return on your money before you even invest a penny.
Start small and increase the amount you save over time
If you don’t have a lot of extra money, you can still get started. Start by saving a small amount, and promise yourself to review and increase the amount you’re saving over time. If you time the increase with your annual raise, you won’t even notice the difference. If you receive a bonus, even saving a portion of it will make a difference over the long term.
Fortunately, I changed jobs soon after my decision not to join the pension plan. My new employer had a mandatory pension plan, so my bad decision didn’t have a significant impact on my retirement savings.
Do you have any retirement savings advice or tips for setting aside money for retirement? I’d love to hear your ideas below.
Great post, Michelle! Those who start saving for retirement at a younger age won’t have to set aside as much each month due to the magic of compound interest – the money grows amazingly fast at a certain point. Just set it & forget it! But for those of us (like me) who waited to start saving for retirement late in life, will have to save much more each month to catch up. Save early, save often!
Exactly! An early start makes it so much less painful. At the other end of the spectrum, many people say “I am too old to save for retirement, so why bother?”. I think the message is “The best time to start is right now!”
Awesome posts, thank you so much for sharing
Thanks Constance!
As someone in their 20s, I found this advice really helpful. Saving for retirement is so important but so often overlooked!
Thank you. That’s why what you said in your post about not needing a lot of money to get started with investing resonated with me. The important thing is to get started with as little or as much as you can!
Awesome post, Michelle! I think that automatic payroll deduction for an RRSP is an excellent way to contribute to a retirement savings account. Even if it is small, as you pointed out, the money sure can add up, especially if you start contributions early. You can become so used to ‘not’ seeing the money on your paycheck, but there it is in your RRSP, accumulating as time goes by! Great advice, Michelle!
Thanks Cher!
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Thanks for the great advice Michelle. I have a question for you: does it make sense to have a RRSP in addition to a workplace pension? Or will the pension alone be enough for retirement.
That’s a really good question because there are so many factors to consider. It all depends on how much you and your employer are putting into the pension plan. For a young person starting out, a TFSA is another great option. You could put money there and, because RRSP contribution room accumulates over time, move it to an RRSP later. You don’t get a tax deduction with a TFSA but investment returns aren’t taxed and you don’t pay tax when you take the money out so you have a lot more flexibility on what to do with the money.
Thanks for the info! Something for me to consider 🙂
We’re quite fortunate in Australia that we have something that is put in place called Superannuation – and it’s basically a forced savings plan for retirement. Under normal circumstances, you can’t touch it until you’re retired, and a portion of your paycheck every week (before tax) gets sent off into this invisible investment spot. Whilst it’s hard to know that you have thousands potentially already saved and can’t touch it – I love the idea that in retirement we’re not automatically going to have to rely on the pension.
Because of this I don’t normally save anything else outside of my normal pay check (when I was working) – but I’d highly encourage anyone who doesn’t have this scheme as an automatic thing in their lives to look into it. You’re absolutely right – you don’t miss it (especially if you’re starting a new job and ask to put say 5%-10% away) and can really help in the long run!
Yes, I did some research on the Australian Super a couple of years ago at work. It’s an interesting system because I think the employee can decide where and how the money is invested so when you change jobs you can keep the same account open.
Absolutely correct 😊 I’ve had a couple of different accounts over the years but consolidated them all about 5 years back and it just follows me wherever I need to go.