During a time when housing costs are increasing and the general cost of living is higher than ever, many young families are struggling to stay debt-free, let alone save for retirement. Putting aside money for retirement might be on the backburner but it is a financial goal that should be made a priority early on.
- Only 28 per cent of Canadian workers aged 25-34 and 34 per cent of those aged 35-44 make any RRSP contributions. A decade ago these numbers were over 6 per cent higher.
- Although wages have steadily grown in the last 30 years, the average personal savings rates dropped from 20 per cent to just 5 per cent. (In 1985 the median household income was $48,000 in today’s dollars – while in 2012 the median was $77,000.)
Why We are Not Saving for Retirement
Less than a quarter of millennials, and less than one third of those in generation X, believe they are saving enough for retirement. For many, it may seem counterintuitive to put money aside while they have debts accumulating and they are living paycheck to paycheck. Unexpected expenses, high housing costs and long lasting student debt mean that there are minimal funds left over each month. Along with not having money to spare, many do not save for retirement because they do not expect to retire any time soon. The notion of retiring at the age of 65 does not seem like a reality for most. Many plan on working well into their 80s therefore saving for retirement is less of a time-sensitive goal.
Learn to Save – Pay Yourself First
Although saving money has become increasingly difficult, the sooner you start – the better. The concept of ‘paying yourself first’ has been made popular by the bestselling book The Wealthy Barber. The idea is to put money aside as soon as you get paid – then manage the rest of your money afterwards. An easy way to do this is to set up automatic deposits into an RRSP or tax—free savings account. To put things into perspective, if you deposit $25 a week, you will have saved $13,000 in ten years. Setting up automatic deposits is a way to force yourself to save. Too often we worry about paying off everything first and before we know it there is no “extra” money to put away. If you think you could easily put aside $25 a week, aim for $50 and only adjust it if you really have to. The costs might be easier to absorb than you think.
Those with defined benefit pension plans can at least count on a decent pension when they do retire, but in 2011, only 40 per cent of Canadians had a plan. Even if you are not in a place to set aside substantial amounts of money, get into the habit of putting something away and increase the amount when you are able.
Looking for some financial advice? In the market for a new home? Give me a call at 416- 921-1112 and I will be happy to help.