If you ask the average 25-year-old what’s on their mind, retirement is probably not going to be one of the top answers.
At 25, most are focused on the start of their career than the end of it. In your 20s, you’re establishing yourself professionally. You’re paying bills, maybe paying off student loans, too. You might be thinking about having a family or travelling. Retirement could not be further off, so why worry about it when you already have a full plate and a full budget?
The sooner you start saving, the more your money will grow
My grandfather drilled the idea into me that saving from a young age would put me in the best possible position for retirement. He was right. There’s no better time than your early—or, mid-twenties to start putting money away for the future. I began putting just a small amount away on a monthly basis and it is incredible to see how that’s grown over time.
But I don’t have money to put away for the future, you say. That’s understandable. It’s hard to find money to spare when you feel like you couldn’t possibly stretch your paycheque anymore. This is when you take a closer look at where your money is going and where you could potentially squeeze some out for retirement savings. That $6 you spend on a latte most mornings, for instance, could actually pay for a pretty comfortable lifestyle in your retirement.
Before you question what difference $6 will make or how you’re going to do without your morning latte, think about this: $6 every weekday adds up to $30 every week, which adds up to $120 a month. If you put $120 a month into a savings account where it will earn compound interest—let’s say 6 per cent, compounded monthly—you’ll have almost $240,000 if you plan to retire in 40 years. That will buy you a lot of lattes, or Mai Tais on the beach, or whatever you fancy in your retirement.
It will also give you peace of mind in knowing you don’t have to stress about money, especially when you’re no longer bringing in an income.
People are living longer and living better
Retirement used to be a relatively short period of time where people would make do with what they had left. That’s no longer the case.
The average life expectancy in Canada is 83 years. That means you could be 20 or 30 years into your retirement and needing money to get you through that time. But let’s be honest, do you really want to “get through” those years or do you want to enjoy them?
More retirees are choosing to travel or buy vacation properties in their later years. And why not? After all those years of hard work and saving up, you deserve to live a little.
When you start saving for retirement early on, you have the opportunity to save more and save smarter. Sure, saving later in life is better than not saving at all, but you’ll earn more interest (which is essentially free money) the sooner you commit to a retirement plan.
The economy has a mind of its own
Well not quite, but it seems like it sometimes. Inflation rates are on the rise, which means you’ll need more money to cover the gap between what you have and the higher cost of living. Also, if you want to buy that beachfront property in Mexico or sell everything you own and travel the country in a luxury motorhome, you’ll have to account for a changing real estate market and financing options. Whatever your retirement dreams may be, saving early gives you the flexibility to make them come true.
The tax breaks are worth it
Some retirement plans give you the added bonus of tax savings, on top of retirement savings. For example, a registered retirement savings plan (RRSP) allows you to put money aside for your retirement while deferring tax payments on the interest until you withdraw it. A tax-free savings account (TFSA), on the other hand, generally gives you a tax break on what you contribute and what you earn.
If you’re thinking you might be ready to give up at least a few of those lattes in favour of retirement savings, you can find a retirement saving calculator online to give you an idea of how much you should be putting away. An even better bet is to speak with a financial planner, who will know your personal financial situation and the investment tools that will work best for you.
While it might be hard to get past the thoughts of what you need right here, right now, your future self will thank you for getting a head start on your retirement planning.