This post is in collaboration with the Financial Services Commission of Ontario.
“A little is better than nothing at all.”
This is what we hear over and over when it comes to saving for retirement as a millennial. No matter how little there is left over after you pay your rent, student loans, and car loan, it’s important to squirrel away a few dollars every month. Because to live comfortably in retirement you’re going to need a lot of money.
I’ve always taken this advice to heart, and when I was 24, I started saving for retirement for the first time. It wasn’t much at first, but once I conquered my student loan and my car loan, I redirected my minimum payments on those debts ($300 and $200, respectively) towards retirement. I didn’t make a retirement plan, although that would’ve been a smart first step. Instead I focused on contributing what I could, and not worrying about whether it was enough. The $500 per month didn’t seem like much at the time, and progress was painfully slow, but it was a start. Eventually, through raises and savings in my budgeting, I was able to increase my contributions to $600 per month and slowly but surely, my account balance grew.
Save Now, Reap the Rewards Later
My dedication to saving stemmed from one primary motivation: fear.
I didn’t really know what my retirement would look like, but I knew a few things would be true.
First, I knew that I couldn’t count on anyone else picking up the tab for my retirement. Some people think that the Canada Pension Plan won’t even be available to us in 35 years, and while I’m not that pessimistic, I know that CPP is only intended to make up a small portion of my retirement income. This is a common misconception that I wish I could wipe out of existence: CPP is not meant to be your primary source of income in retirement. To put things in perspective, the maximum CPP benefit in 2018 was only $13,600 per year, and in 2016 only 6% of eligible Canadians could claim the maximum amount. I don’t know about you, but $13,600 per year won’t get me very far in retirement. Instead, I want to have enough money in the bank to fund a comfortable retirement, and any extra payments from the CPP will be a bonus.
Second, I know that I might live a good long while after retiring at age 65. Projections show that some people are retired for as long as they spend in the workforce, and I want to have enough income to support that.
Finally, I knew that, as a marketer with interest in entrepreneurship, it was unlikely that I would ever have access to an employer’s pension plan, so saving for retirement sat squarely on my shoulders, and I couldn’t rely on someone else to handle that burden.
Balancing Retirement Savings as a Millennial
Saving for retirement won’t always be linear, so it’s important not to put it off if you can afford it now. Especially as a millennial, there are so many things that can derail saving for retirement. For example, I haven’t put a dime into my RRSPs since my husband went back to school. There simply isn’t enough money to afford it while we’re living on one income.
Once my husband is back to work, we’ll resume our contributions, while also trying to balance paying back the money we borrowed under the Lifelong Learning Plan and addressing our other money goals, such paying down our mortgage to mitigate rising interest rates, or finally tackling that attic insulation problem.
Managing conflicting priorities can be overwhelming, especially when there isn’t that much money to go around between the different goals. If this sounds like your situation, read on to find out how I’m planning to tackle it:
Just like when I started back at the innocent age of 24, I’m going to restart my retirement contributions slowly, until my husband’s employment situation sorts itself out. Since even just $50 per month is better than nothing, this is where you should start too. Gradually scaling up makes starting retirement contributions less daunting, especially if you are trying to balance other priorities like paying off your debt. If you have a hard time sticking to a schedule, you should also consider setting up auto-transfers from your chequing account to your retirement savings accounts. This makes saving for retirement automatic.
RRSPs vs. TFSAs
There are a million articles on the internet about whether an RRSP or TFSA is the better choice for investing. Honestly, it depends on your situation. If you aren’t sure, here’s a great primer.
For me, contributing to my RRSP makes sense right now, because I work a full-time job and earn money on the side through my freelancing business. As a result, I usually have to pay a fair amount in taxes, and RRSP contributions help offset that. I also expect to have a lower income in retirement than I do now, which means that I’ll pay less tax in retirement when making my RRSP withdrawals (which – don’t forget – are taxed upon withdrawal).
Whichever method you choose, the important thing is that you start saving now, so don’t let your indecision stop you from committing.
When Job Hunting, Look for a Job with a Pension
The “P” word doesn’t get much play in the millennial personal finance circle, because few of us have the option to work for organizations that offer pensions. I’ll probably never have a pension from an employer as long as I work, but my husband, on the other hand, is in a field where an employer pension plan is a real option.
Pensions haven’t been on my radar, well, ever, but they’re a huge selling point for a job. Since we’re likely to be retired for as long as our working life at this point, any guaranteed income post retirement has a huge value to our finances. It’s also free money, because your employer must contribute to it. My husband will be favouring jobs with a pension plan over those without, especially when he is first job hunting, and you should be too. If you aren’t sure how to value an employer pension plan as part of your overall compensation package, here is a great resource.
Balancing saving for retirement with all of the other, seemingly more pressing matters can seem impossible, but the important thing is to start early, establish the habit, and understand that saving for retirement isn’t linear. So if you have the money in your budget now, put it away, because you might not have it later.
If you’re ready to commit to saving for retirement, or you want to learn more about that employer pension plan you’re enrolled in but not truly taking advantage of, check out FSCO’s website for loads of useful information, tips, and an online retirement planning quiz.
Do you have a pension? Was it part of your decision to take your job? I want to know!