There have been countless reports which state that the Baby Boomers will need to work longer in order to save enough money to retire. Although retirement is supposed to start at 55, many people now work into their mid-60s or later out of necessity.
University students typically graduate at 21 or 22 and start pursuing their first real job. I will be graduating (for the second time) at 25, which is due to being part of the double cohort in Ontario and also choosing to complete a second degree. In terms of planning for my future, I’m a bit nervous about the fact that I will be reaching retirement age in 30 years and I have no definitive direction, nor do I have a stable, full-time job which allows me to save for retirement.
The truth is we don’t need to start with a ton of money to build a nest egg. Although the more you can save the better it ends up for you in the long run, you do not need to start out with a large lump sum.
If saving is tough for you, start small. Start putting aside 1% of your gross pay (what you earn “on paper” before deductions). Once you get used to the amount, move up to 2%, and once you’re comfortable with that move up to 3% and so on.
If you’re already working in an entry-level position with retirement benefits, you should find what the company’s retirement plan, also known as a Group Registered Retirement Savings Plan (RRSP), is all about. RRSPs allow you to save for your retirement while simultaneously deferring the income tax on earnings and savings until the money is withdrawn.
Up to 18% of your wages (to a maximum of $22,000) can be put into the company’s RRSP in a given year. They are designed to allow a flexible retirement date up until December 31 of the year you turn 71. From there, the RRSP’s must be converted into an annuity or a Registered Retirement Income Fund (RRIF), and you must start withdrawing money.
Of course, not all companies have a Group RRSP, so you should be saving on your own. If you start saving early, you have the power of interest on your side (as opposed to it being against you when you need to repay student loans or credit card debt). The money you put aside will grow because of this interest, so you should always have some put aside in either a high-interest savings account or one made specifically for retirement.
If you’re more interested in market-related investments, set up an informal meeting with a financial advisor at your bank to get some more information and advice.
Regardless of the ways and amount you choose to invest, the most important thing you should be doing at this point in your life is starting to save. Every little bit counts for the future.
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