Your 20s, 30s, and even 40s might be too early to think about retirement, right? Nope! Bloomberg says you need to start saving at 25 when saving for retirement in Canada and the US. But saving is just one part of the puzzle. Our financial advisors walk clients through four phrases of retirement saving: earn, save, grow, and preserve. If you’re interested in learning more, you’re best bet is to find a financial advisor today. But in the meantime? We’ll break down the four phases of retirement for you to help you master saving for retirement in Canada. Let’s dig in!

How much should I be saving for retirement in Canada?

Depends on who you ask. Sunlife says anywhere from 40% to 70% of your pre-retirement income; Canada Life says 70% to 80%. We’re inclined to agree with Canada Life on this one. Why? Because you can’t imagine how much inflation eats at your money over the course of decades. Also, most consider their retirement savings on pre-tax terms so it helps to have more in your nest egg to account for taxes. In terms of how much of your pay cheque you should save each month, consider Sun Life’s visualization:

• Age 20 to 30: 8-10% of your income each year
• Age 40 to 50: 25% of your income each year

Now, where is all that money supposed to go? 

Related Reading: How Much Money Do I Need to Retire in Canada?

What is the best retirement savings plan in Canada?

You have a few options for investment vehicles to save for retirement in Canada:

• Tax-Free Savings Account (TFSA): No taxes on interest gained? Sounds like a sweet deal! The only potential issue you could run into when using a TFSA as a retirement fund is the tempting flexibility. You can pretty much withdraw from a TFSA whenever you want, meaning there’s a chance you’ll squander your hard earned savings before you need it. Our advice? TFSAs are great for shorter-term financial goals, emergency funds or as a retirement fund supplement, but you might consider a more robust RRSP instead.

• Registered Retirement Savings Plan (RRSP): This retirement fund is a lot more strict in terms of withdrawals. While deposits into this account are eligible for tax deduction, withdrawals will give you a hefty tax bill and penalties. RRSPs are a strong option if you want to enforce the discipline of savings. You can only withdraw from a RRSP under the Home Buyers Plan (HBP) and Lifelong Learning Plan (LLP), but these are more so loans from your RRSP than withdrawals.

• Custom retirement fund: Mutual funds, ETFs, and stock holdings are all potential components of your retirement portfolio. Your financial advisor can help you select a diverse, stable group of investments to make up your retirement. This gives you a middle-ground between the strictness of an RRSP and the super-flexible TFSA since you’ll need to complete a few steps to withdraw, but your money is still accessible without as much penalty as an RRSP. 

Ready to save for retirement? Let’s explore the four phases of saving for retirement in Canada in the next section.  

Related Reading: What Are The Best Retirement Plans?

The 4 Phases of Saving for Retirement in Canada

As American writer Tennesse Williams once said: “You can be young without money, but you can’t be old without it.”

Let’s make sure you have a healthy retirement fund to maintain comfort, joy, and security in your old age. First step?

Phase 1: Earn

What’s your monthly income like? Do you feel strapped, living paycheque to paycheque? If so, you likely don’t earn enough to move on to the saving phase of retirement. It’s the same story for people who make median incomes but struggle to repay a lot of debt. 

Does any of this sound familiar? You’re not alone. Unfortunately, nearly half of Canadians are living paycheque to paycheque. 

Your first instinct might be to lower your expenses. That’s easy enough if we’re talking about frivolous things like Uber Eats, retail therapy, or extravagant vacations. But what happens if you shave all that excess and still don’t have room in your budget for retirement savings?

The answer is you need to earn more. Your first goal is to earn enough to cover your expenses, and then a little more which can be put towards your savings. Here are a few tips to make that happen:

• Ask for a raise: If you’ve been working at the same place for a while, chances are your wages haven’t increased to match inflation. Check out resources like Zippia, Fishbowl, or Indeed to become aware of salaries in your niche. You might also highlight your strong performance and commitment to your employer during the conversation. Struggling on how to go about asking for more money? Check out how to ask for a raise here.
• Improve your skills: Let’s say asking for a raise doesn’t work, or doesn’t bring you significantly more income. Maybe you can qualify yourself for a better raise with professional development in your niche. Or, you might study a new skill altogether if you think it can bring you a more profitable career. Sometimes a lateral move can be more profitable than staying in your current job or field.
• Find a side hustle: Whether it’s walking dogs, evening restaurant work, focus groups, or anything else, side hustles are a great way to improve your income. Just be sure to read up on side hustle taxes, too. 

Once you’re earning enough to have leftover funds after bills and debts, you’re ready for phase two.

Related Reading: Understanding Debt Solutions in Canada

Phase 2: Save

Now that you’re making more money, more doors are opening. Maybe it’s a weekend trip to NYC, renting a snazzier apartment, or simply ignoring your previous budget. Oh no—it’s lifestyle creep. This happens when you generate more income but end up wasting it on lifestyle changes that don’t actually secure your financial future. 

Don’t be so quick to tap your credit card. Take time to consider every purchase—even wait a week if you have to. That extra income should be used to pay yourself first.

Phase 2 doesn’t have to require that much discipline. The easiest way to save for retirement? Automate your savings. Don’t even think about it—let the bank automatically transfer a few hundred dollars into a savings account or investment vehicle on the day you get your pay cheque. We call this tactic “set it and forget it”. What’s left is for you to spend.

Soon, saving for retirement won’t be a second thought. Plus, as you see your savings grow, you’ll gain more confidence and momentum. Your automated savings will work their magic over time, leading you to phase 3:

Phase 3: Grow

Compounding interest is the name of the retirement game. And if you start early, time is your friend. Your savings won’t just amount to the exact sum of your deposits after thirty years. Ideally, they’ll grow much more than that. For example, RRSPs grow an average of 8% each year. Not sure where to start with investing? Check out how to invest your money here.

Still, it’s important to monitor your portfolio to ensure growth is actually happening. A financial advisor can sit down with you every quarter or year to assess your portfolio’s performance. You have the autonomy to reinvest some of your retirement funds in a way that grows faster. 

And once you’re satisfied with growth? The final phase is incoming. 

Phase 4: Preserve

Think about your final years leading to retirement. Life can throw a lot of curve balls at you, like an economic downturn that tanks your portfolio or a lay off just as you were nearing your nest egg goal. The best way to preserve your retirement fund is through a robust risk management strategy. 

Your financial advisor will recommend diversification to protect your investment. Or, you might consider insurance to add an extra layer of security for preservation. 

Related Reading: How to Invest $1,000, $10,000 or $100,000

Am I saving enough for retirement in Canada?

You won’t see a retirement fund appear just by sticking coins in your piggy bank. That’s a childhood memory for a reason—it doesn’t grow with you significantly enough to sustain you down the line. If you want to save enough for retirement, remember that saving is only one phase. You need to earn enough to save, save enough to grow, and preserve that growth in time for when you need it.

Of course, a lot of this is easier said than done. Don’t panic if you feel overwhelmed by retirement, many Canadians feel the same! That’s why financial advisors are around—to guide you through your financial goals and help you reach them with expert advice. After all, some of us are more savvy with finances and numbers than others, and we all need help from time to time.

Ready to save for retirement? Advisorsavvy’s fully vetted and reviewed financial advisors are ready to help. Find a financial advisor today!

Read More: Top 10 Retirement Planning Tips For Canadians