Savings for Retirement Questions

May 21, 2013

retirement-planningSaving for retirement: When should you start? How much will you need? What plans are available?

Retirement is on the horizon and if you haven’t already started, now is the time to start saving.

A 2011 Statistics Canada survey shows most people are saving four percent of their disposable income. This may not be enough to last through your entire retirement and allow you to maintain your lifestyle.

It’s a good idea to start preparing for a comfortable future by putting money aside, setting specific financial goals and researching retirement plans that best suit you.

When should you start?

Soon. These days, people are retiring earlier, living longer and the amount of money you need for retirement is increasing. Time is also important because the longer you have to save, the more money you’ll be able to invest and spend after retirement.

While some experts recommend beginning to save as soon as you have an income, time is not the only factor to consider. There are a few additional financial goals that should be set before deducting a portion of your income. Once these goals are addressed, you can begin saving for retirement.

  • Set aside an emergency fund with easily accessible cash to be used for unexpected expenses.
  • Make sure your budget covers immediate needs, such as food, utilities, rent and other monthly bills.
  • Make sure you are regularly making payments on loans or mortgages.

Now, you can move forward with retirement savings. Taking the time to evaluate current obligations will keep you from making goals that are impossible to meet.

How much will you need?

Plan to spend less on yearly expenses during retirement. Current expenses such as supporting children, especially if you’re paying tuition; mortgage payments and employment-related expenses will no longer apply.

However, don’t underestimate your needs as you’ll want to account for some increased expenses based on inflation and additional medical care. Also, if you’re planning luxury vacations or relocating, you’ll need to save more money for your future.

Keeping these concerns in mind, use the following equation to determine an approximate savings goal that should provide for your needs:

First, determine what amount is 70 to 80 percent of your working yearly salary. Multiply this figure by the average number of years you expect to spend in retirement. Then subtract the amount you plan on receiving from Old Age Security (OAS) and the Canada Pension Plan (CPP), if you have made contributions to it. The average annual payout for the combined CPP and OAS for a couple is $25,000.

Once all the calculations are complete, the final amount shows how much you’ll need to maintain the pre-retirement lifestyle you currently afford.

It will be easier to meet this goal if you invest your money in retirement accounts.

What are the available plans?

The money that will provide for your retirement can come from three main areas: Government pensions, company pensions and personal savings. To maximize the potential of your current income, start making contributions to retirement plans early so that you can begin earning benefits.

  • Government pension benefits you may be eligible for include: Canada Pension Plan, Old-Age Security, Guaranteed Income Supplement, Allowance and Survivor’s Pension. Your eligibility will depend on your income, age, residence, previous contributions and other factors.
  • Contact your employer to determine what pension plans they offer. Typically, there are two types of employer pension plans: Defined Benefit Plans and Defined Contribution Plans.
  • On your own you can make contributions to Tax-Free Savings Accounts or Registered Retirement Savings Plans (RRSPs), which are offered by banks and other financial institutions.

Some of the benefits from retirement plans let you regularly save a portion of your income, receive tax benefits and earn compound interest.

Today is the day to write down and start executing your plan for the future. Evaluate your current obligations, estimate your future needs and begin pursuing the financial sources that can start building your nest egg with your current income.

Alanna Ritchie is a content writer for, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.

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  • suethecollectors

    really magnificent article on retirement
    and after reading this i’m also think about saving money for myself and my life partner

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