RRSP by FlexFi Team

Why all Canadians Should Start Saving Early for Retirement

by the Finjoy Team

There are a lot of Canadians heading into retirement without enough savings in their accounts. A report by Broadbent Institute shows that half of couples between 55 and 64 years old have no employer pension. Additionally, less than 20% of middle-income families have enough savings to properly supplement government benefits.

The CPP pays out a maximum of $12,780 a year, and many retirees don’t even qualify for that amount. Surely, seniors can also collect old age security payments of up to $6,839 a year. However, both plans combined fall below $20,000 a year per individual.

CPP pays out a maximum of $12,780 a year and many people don’t even qualify for that amount.

These numbers show that you shouldn’t rely only on the government to finance your retirement. If you have children, you probably would like to spend as much time with them as you can. However, having to live with them because you don’t have the means to live on your own is completely different.

In other words, there should be enough on your accounts to cover your expenses during retirement years. Sure, you can always win the lottery or receive a big inheritance. But, unless you’re that lucky, the best way to remain independent is through savings. And, to accomplish that, you should start saving for retirement as early as you can.

Understanding the numbers

Take the example of Lucas and Ana, a couple that started thinking about their retirement. Their goal is to have a monthly income of $4,000, which is around 70% of their current earnings. To achieve that, they figure they’ll have 30 years ahead of them before retiring.

This issue became a priority when they saw the monthly amount they would receive from CPP at retirement. CPP will likely pay them the average amount, which is around $650 per month. This means that their income, combined, would be $1,300. That’s less than half of the $4,000 amount they need.

Saving for Retirement Chart

In other terms, they will be $2,700 short every month. That difference must come from their personal savings, investments, and other sources. Apparently, what they already have, which is $25,000 invested in a TFSA account, will not be enough.

In light of this reality, Lucas and Ana went through their household budget and were able to cut some expenses. After that, they began to save $500 every month. After 30 years these monthly savings, combined with the existing TFSA balance, will sum up to around $430,000.

It’s still not enough, but it gets them much closer to the goal. If they invest their savings in an Annuity–a product offered by many financial institutions–it could generate an additional $1,800 monthly, for 25 years after retirement.

To narrow the gap even more, they can look for ways to increase their monthly saving for retirement over time. Similarly, speaking to a qualified licensed advisor is also a great idea to identify ways of getting better returns on their investments.

Bottom line

The Government pension plan helps provide a minimum income level when you retire. Unfortunately, for most people it won’t be enough. This means that, in addition to contributing to CPP, you need to start saving as soon as you can. And, of course, have a solid plan for retirement.


First, it is never too early to start saving for retirement. Second, every single dollar invested towards your retirement helps. Third, even if you are not able to save as much as you’d like, start saving something. And, finally, compound interest and time are your best friends.

Finjoy Capital is not a financial advisory firm.
This article is for informational purposes only and is not a substitute for individualized professional advice.

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