Best Reasons to Start Saving Now For Retirement

For most of us the decision of when to start saving for retirement and how much is a confusing one. The answer is its never to early or to late to start saving and how much depends on the lifestyle you see yourself living in retirement. Of course the earlier you start saving the better because of the effects of compound interest, meaning the earlier you start saving the more your money start making money for you because you will be earning income on your savings while still investing more money. The goal is to eventually be able to live of the income your retirement savings generates.

Importance of Saving for Retirement

Although there are many people out there who have company sponsored pension plans many of do not. My company does not have any sort of retirement savings plan other than the mandatory government retirement plan that they are required to remit contributions to so its all up to me to secure my own retirement future.

How Much Money Do I Need to Save?

Generally if you have a company pension plan then the rule is that your pension plan should cover at least 50% of your retirement needs and government plans another 20-30% leaving you needing to save about 20-30%. However if you do not have a company sponsored plan you will need to save 70-80% of your retirement income on your own. Also keep in mind that there have many instances where companies have reduced employee pension benefits or sometimes even bankrupted the pension plan entirely. Therefore it is up to you to start saving to give you peace of mind.

Saving for Retirement in Your 20s

Of course the earlier you start saving the better but for most people in their 20s they are busy paying down student loans and trying to save for the down payment on their first home. Keep in mind that something is always better than nothing and even if you are only contributing a small amount that you are still getting into the routine and discipline of making weekly, monthly or annual contributions. For example if you were to save $50 per month at the age of 20 which is about $25 per pay cheque you would have approximately $8500 at the age of 29. Now you might say that you certainly aren’t going to retire on $8500 but its $8500 that you wouldn’t have had in that account if you had completely ignored saving for retirement while trying to pay off those school loans.

Saving for Retirement in Your 30s

Saving for retirement in your 30s can be just as difficult as saving in your 30s because you often aren’t quite established in your career and the financial burden of starting a family is also taking its toll. Again its important to “pay yourself first” and make sure you’ve set aside money each month or pay cheque to deposit to your retirement account. Using the above example if you started with $8500 at age 29 and saved $150 each month you would have approximately $41,500 by the time you reach age 39. This amount alone without any further contributions would grow to approximately $151,750 by the time you reach age 59 or $225,000 if you continued to make those $150 per month contributions.

Retirement Planning

It is important to start early and outline a retirement plan for yourself. At what age do you plan on retiring? Will you work part time in retirement? Do you plan to travel or start new hobbies? If so how much per year is this going to cost you?

It is important to quantify your yearly retirement needs now so that you can stay on track to save enough for your dream retirement. You don’t want to get to age 55 or 65 and all of a sudden realize that you aren’t going to be able to take all those trips you’ve been dreaming about right? Plan now for your retirement future.

Saving for Retirement Calculator

There are dozens of online retirement calculators that can help you determine how much you will need to save and how often.

For Canadians the best retirement calculator to use is the one found on the Service Canada web page. It will give you a detailed breakdown of all your sources of retirement income including your estimated government pension benefits.

For US citizens FINRA has a great Retirement Calculator that you can use to estimate how much you will need to contribute annually based on your current retirement account balance, your current age, the age you wish to retire and so on.

So start investing now to secure your retirement future, we all want independence and security in our retirement and only you can make that happen for yourself. Remember the saying “pay yourself first” so that there is never an excuse that there just wasn’t enough money left at the end of the month or pay cheque.

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