Tips to Choose the Best Retirement Funds in Canada

Retirement Fund

How to start saving for retirement has never been a more pressing question. Nowadays, over 60% of Canadians have no company pension plan, while 30% have no retirement funds at all.

Why is saving for retirement so important? Government pensions including Canada Pension Plan (CPP) and Old Age Security (OAS), are only designed to provide a small percentage of your retirement funds, so if you have no company pension, a personal retirement fund is essential to guarantee a financially secure retirement.

It seems, however, that many Canadians are struggling to put together adequate retirement savings. A recent survey found that 75% of Canadians have no financial plan for their retirement. Furthermore, 44% expect to have to keep working into their late 60s. On top of that, many people don’t actually know how much is enough to retire in Canada.

In this piece, we’ll take a look at how much you need to be saving, tips for saving for retirement and how to start a retirement fund to ensure a comfortable standard of living in your later years.

How much is enough to retire in Canada?

The first thing to do is work out how much money you’ll need when you retire. While many financial planners suggest between 60-70% of your working income, everyone’s retirement is different. Also, the amount you’ll need to save for your retirement funds varies by age.

That makes it difficult to answer the question, “How much is enough to retire in Canada?” However, there are a few steps that can help you to pinpoint exactly how much you’ll need to retire.

When it comes to how to start saving for retirement, the first thing to do is work out your post-retirement expenses. Some expenses will remain, such as utilities and home insurance, while others may disappear, such as commuting costs.

Also consider the type of retirement you want. If you’re going to travel the world, become a snowbird or actively enjoy your hobbies, you’ll need more money than if you’re happy to stay at home and limit your travel, dinners out and other costly activities.

How to calculate retirement savings

The Canadian Retirement Income Calculator is a great resource for calculating how much you need to save. It can work out how much retirement income you can expect to receive from all sources, including CPP and OAS.

It also shows how to calculate retirement savings by looking at the necessary retirement funds by age (for example, how much retirement savings you should have at 50). The older you are, the more you’ll need to save to meet your goals.

How to start saving for your retirement fund

The first challenge is to build a plan to save the lump sum you’ll need. Retirement savings calculators can take into account the retirement funds by age, meaning how much you need to save each month, depending on the number of years left before you plan on retiring.

Finding enough money to match that savings figure is one of the toughest challenges, but just starting to put aside savings is a big first step.

Instead of making savings an afterthought, make them a priority along with paying your bills. Cut back on non-essential expenses: the less you spend on unnecessary items, the more you’ll have left over to save.

When should I start saving for retirement?

The best time to start saving for retirement is now. While this might seem like a very simplistic answer, there really is no time like the present to ensure you have sufficient retirement funds. The sooner you start, the longer you’ll benefit from compound interest (when your savings grow faster by earning interest on the interest).

And no matter what your age is, today really is the best time to start saving for retirement. It’s better to start late than not at all if you want a more financially secure retirement.

RRSPs and company retirement funds

One of the best options for retirement savings is a company pension plan. Try and maximize your contributions if your employer matches them.

If you have no company pension, you should open an RRSP. You can save up to 18% of your earnings each year (to a max of $27,230). A benefit of RRSP contributions is that you’ll receive an immediate tax rebate, which you can put straight into your retirement savings, so they grow even faster.

Given that the amount you need to save for your retirement funds varies by age, you can boost your RRSP savings later in life by using unused contributions from previous years.

As your salary grows, try and increase your contributions to your RRSPs and if you max those out, open a tax-free savings account (TFSA). Savings in both accounts grow tax-free, so they grow even faster with compound interest.

Tips for saving for your retirement fund

After you’ve paid off your bills and other essentials, retirement savings should be the next priority. Work out how much you can afford to save every paycheck and make it an automatic payment – that way you won’t even notice it’s gone.

To really build your savings, many recommend that you should aim for investment returns between 7-10%. While the stock market has brought an average annual return of around 10% over the long term, some years can bring considerable losses. When investing in stocks, you should have a long timeframe in mind, so you can ride out the market’s lows and take advantage of the highs.

One of the best options for growing your retirement savings is a portfolio with a high percentage of stocks and low percentage of bonds. This allows for maximum potential growth, but just be aware that it also brings a higher risk. Make sure to discuss a suitable portfolio asset allocation for your investment goals with a financial advisor.

Concerned about not having enough for retirement? CHIP can help you get the cash you need. Find out how much you can get!

For beginner investors, mutual funds or exchange-traded funds (ETFs) allow you to easily diversify your investments and therefore reduce risk. These funds buy into dozens or even hundreds of companies, so if one company fails, the losses are minimized.

Here’s another tip for saving for retirement: be sure to ask about management fees. They can be very high for mutual funds and can eat into your investments’ growth. ETFs typically have much lower fees.

How a reverse mortgage can help fund your retirement

If you’re approaching retirement and have inadequate retirement funds – or no retirement funds at all – your finances could be stretched.

However, if you’re aged 55+ and own your own home, the CHIP Reverse Mortgage® could be the perfect way to boost your retirement income and vastly improve your retirement standard of living.

You can cash in up to 55% of your home’s value, tax-free, and it will have no negative impact on any government benefits you receive. And you don’t have to make any regular mortgage payments: you only pay back what you owe when you decide to move or sell your home.

Call us at 1-866-522-2447 today to find out how much you could borrow to boost your retirement funds.

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