Save For Retirement

You’ve likely been told over and over again – you should start saving for retirement! And that sounds great to you – but how do you get started?

Set up automatic savings

The key to making sure you save for retirement is to set up automatic savings. This means that you have a fixed amount coming out of your bank account every time you get paid (or on another schedule that works for you). By having your retirement savings go directly out of your account into a retirement account, you avoid the temptation of spending all your money! Plus you don’t have to worry about remembering to put money aside constantly – it’s all set up to be done automatically!

Try to aim for putting at least 10 percent aside of what you’re making in your retirement savings. If you can put aside more, great! If you can’t put aside that much, that’s OK too – the important thing is that you’re saving for your retirement.

Saving For Retirement With An RRSP

Traditionally, most people think of RRSPs when it comes to retirement. Registered Retirement Savings Plans or RRSPs came into existence in 1957, as a way to help encourage Canadians to save for retirement. They work as follows:

1. You can put a certain amount, up to a designated maximum, into your RRSP each year.
2. Any contribution room you don’t use rolls over to the next year, so you don’t lose it.
3. You can deduct RRSP contributions to reduce the amount of taxes you owe.
4. All gains in your RRSP are tax-free until you take the money out of your RRSP.

While it can benefit anyone to open and contribute to an RRSP, they are most beneficial to high-wage earners. High-wages earners benefit more from the tax deductions up front, and being taxed on their gains later in life when they’ve retired and are in a lower tax bracket.

Saving For Retirement With A TFSA

TFSAs are a much more recent way to save for retirement. TFSA is short for Tax-Free Savings Account and they’ve been around since 2009. This is how TFSAs work:

1. You can put a certain amount, up to a designated maximum, into your TFSA each year. Unlike an RRSP, the TFSA maximum is the same for everyone.
2. Any contribution room you don’t use rolls over to the next year, so you don’t lose it.
3. All gains in your TFSA are tax-free – you never have to pay taxes on them, even when you withdraw them!

If you have a lower income, then TFSAs may be better suited for you for retirement than RRSPs. You may not need the tax deductions an RRSP offers, and then your entire retirement income will be tax-free!

The Takeaway

There are two key things to take away from this post. One is that automated savings is the best way to keep on track with saving for retirement. The other is that it’s best to save for retirement in a manner that helps you cut back on the amount of taxes you have to pay – whether that’s via a TFSA or an RRSP or both!