When you’re just starting out in your career, retirement can seem like it’s too far away to imagine. But the sooner you start planning for your retirement, the more money you’ll have available to experience your dreams.
Here are four things to consider when planning for retirement.
Start as soon as you can
You’ve likely seen charts and graphs showing how every dollar you invest today can grow multiple times over a long period of time. These charts visualize the power of compound interest. If, for example, you invest $1 in an account that will earn you 5% per year, at the end of the first year, you’ll have $1.05. But in the second year, you’ll earn interest on the dollar and the 5 cents. The larger the initial investment and the longer the investment period, the more your money will grow.
Maximize your RRSPs and TFSAs
There are two popular federal government programs that many Canadians use to help fund their retirement: Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). Both are similar in that they allow you to invest money in various financial products, including mutual funds, stocks and bonds. The difference is that you get a tax deduction for anything you invest in an RRSP, but the money is taxed when you withdraw it. There are no immediate tax savings with the TFSA, but the money in your investment grows tax-free for as long as you leave it in the fund. One great way to capitalize on both is to invest enough in your RRSP to qualify for a tax refund, and then invest that money in your TFSA.
Employment benefits
Once upon a time, most Canadians counted on a pension to pay for their retirement years. While many careers still include a pension plan, they’re increasingly few and far between. A more common option today is for an employer to offer matching contributions to your RRSPs. If you’re in the market for a new job, factor in the benefits of working for employers who offer a pension or matching funding for retirement savings in your decision-making process.
Have a side hustle
For many of us, when we envision retirement, we picture ourselves signing off permanently. But the reality is that many people find the switch from a 40-hour workweek to zero hours somewhat boring. Some find satisfaction in volunteering their time or doing other charitable work. But if you’re worried about financing your retirement, perhaps you could turn your career skills or hobbies into a side gig. If, for example, you worked as an accountant, perhaps you could do people’s taxes for them. If you were a writer of some sort, maybe you could pick up some freelance work. If you have worked in construction, set up a business doing small renovation projects.
Find more financial literacy tips and free resources at abcmoneymatters.ca.
