It's about damn time...to start planning for retirement
Putting money towards your retirement can seem daunting when the economy is messy and money is tight, but you can always start small.
By Michelle Musindo
Want to be ready for Lizzo's next concert or Destiny Child's 2060 reunion tour? Then you should already be thinking about how much $$$ you’ll have in retirement. Btchcoin recently spoke to Lisa Hannam, executive editor of MoneySense.ca, on how to plan for your retirement in your twenties and beyond.
Why it matters: You’re probably wondering why start planning for retirement when you can hardly pay rent, student debt and recurring bills. It's stressful and anxiety-inducing to think about long-term saving when you are earning probably the least amount of money in your lifetime. However, Hannam wants you to consider the magic of compound interest.
- "Just a couple of dollars in the bank every month goes a long way," Hannam tells us. "Consider this: If you put away $100 a week starting at age 20, you should have $600,000 in your RRSP by the time you’re 65, with an assumed 4% rate of return." (That's probably enough to pay for VIP tickets to see Beyoncé, Harry Styles and BTS inc concert.)
Coming up with a retirement planning strategy: Any investment strategy will come with risk. When you’re investing for the long term, the market will ebb and flow, so it's important to figure out what type of investor you are. Like the emotional rollercoaster of the Avengers movies, you’ll probably have many highs and lows during your retirement planning journey. In addition to risk, the decision of how to invest is at the forefront of many young investors. Depending on your goals, risk tolerance and how much you earn, there are a few ways you can save for retirement.
You can open a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) or try using a robo-advisor or broker. Hannam also urges young people to not fully depend on the Canada Pension Plan. It's a supplement, but won't be your primary source of retirement income.
- Hannam RRSPs and TFSAs both have their benefits and their disadvantages, according to Hannam. "But at a high level, it’s about where you want to play the tax strategy," she says. Do you want to lower your taxable income now, and delay when you pay tax on the money you put in your RRSP? Or do you want to have tax-free growth on your investments within a TFSA? (There are tools to help you figure out how much you can put in an RRSP and TFSA.)
Then comes choosing what to invest in: Hannam says this is a decision to be made once you decide how you will invest: DIY through an online broker, through a robo-advisor or with a real, live human financial advisor.
- Then, when determining your risk, you can choose assets based on risk. GICs and bonds tend to be “safer” than individual stocks and cryptocurrencies. Hannam says diversification is something many experts recommend, so you can also look at assets that are diverse as well such as mutual funds and ETFs.
The bottom line: Putting money towards your retirement can seem daunting when money is already tight, and we get that. However, Hannam does recommend starting small, with at least building an emergency fund. It is never too late to start saving — whether for an emergency fund or for retirement.