Preparing for Retirement: What You Should Know
As you age, it’s crucial to increase your savings for retirement. Planning early can make a significant difference when that day finally arrives.
A recent survey by the Bank of Montreal indicates that Canadians believe they need about $1.54 million saved to enjoy a comfortable retirement. However, a troubling trend has emerged: more than three-quarters of those surveyed worry they won’t have enough funds due to rising costs.
So, what happens if your family isn’t adequately prepared for retirement?
Imagine a scenario where a mother, age 50, earns $45,000 annually but only has $15,000 in savings, with no registered retirement savings plan (RRSP) or workplace pension. Clearly, she’s not on target to meet the suggested goals.
Looking at the stats, it’s evident she’s lagging compared to others. According to Statistics Canada, individuals aged 45 to 54 have an average savings of around $437,400—excluding assets like property. While many might also be behind, she stands out for being particularly off-course. It’s clear she must take steps to ensure financial security for her retirement years.
The earlier she starts saving, the less daunting it could be down the line.
To secure a decent retirement, significant sacrifices may be necessary, and she might need to work past the typical retirement age.
If your mom has access to an RRSP with employer matching, it’s wise to contribute the maximum immediately. This essentially amounts to free money from her employer, which should not be overlooked.
If not, it could be worth considering opening one. An RRSP or a Tax-Free Savings Account (TFSA) usually offers better returns than a regular savings account.
For 2025, RRSP contributions can be up to $32,490, while TFSAs allow $7,000. Importantly, both accounts let her carry over unused contributions indefinitely, paving the way for potentially larger savings in the future. Given her current salary, hitting the max could be challenging, but it’s a goal to keep in mind.
Next, it’s crucial to assess how much she can save. If she’s lacking a budget, now’s the time to create one, tracking every dollar spent. This can reveal areas to cut back, helping to optimize monthly savings.
Once she maximizes her savings and refines her budget, exploring ways to increase income is the next step. Whether she seeks a promotion, a new job, or even starts a side hustle, the additional earnings can significantly accelerate her path to retirement.
It might also be beneficial to consult a professional financial advisor. They can help devise a strategy, advising on optimal retirement timing and when to access funds from the Canada Pension Plan (CPP) to make the most of her retirement savings.
If your mom wishes to enjoy her retirement fully, it will be a tough journey, but getting serious about saving sooner can definitely enhance her financial future.
