Preparing for retirement: Six tips on maximizing your savings

22 January 2021 by National Bank
Invest and Save For your Retirement

To get ready for your retirement, should you start by paying off your debts or investing? Which investments products should you focus on? Which investment solutions are best for you? Here’s an overview of the six most frequently asked questions when it comes to retirement planning. 

1. Should you settle your debts before saving for retirement?

It’s always best to pay off your debts first. “Less debt means more leeway when dealing with the unexpected and building your retirement savings for other goals,” explains Mohamed Wakkak, senior advisor, investment and financial planning at National Bank. 

Instead, ask yourself if you’re able to pay off your debts while saving up at the same time, without stalling your retirement goals. Basically, it’s about balance. You could consider reducing the debts that cost you the most in terms of interest – your credit card balance and personal loans, for example – while investing a certain amount, however small, into your savings. “You have to start by paying off expensive debts that aren’t tied to any assets (like mortgages) before you start saving ‘aggressively.’ Instead of saving $200 every 2 weeks, for example, you could start with $100 and pay off your debts with the rest,” adds the expert. 

2. Is it better to invest in an RRSP or a TFSA for your retirement savings? 

“If you have some catching up to do in terms of savings, and you have a high income, the ideal thing would be to prioritize an RRSP, which would allow you to reduce your taxes. You could then invest whatever you save in taxes in a TFSA, thus increasing your retirement income at the same time,” Mohamed Wakkak points out. 

While an RRSP is the main savings vehicle you should focus on, don’t forget about TFSAs. Consider this vehicle if your income isn’t as high, if you have less taxes to pay, or if you’re getting close to retirement

There’s no rule dictating what percentage of your income you should invest or how much you should be investing. You could choose to invest in one or the other, or both. “It depends on your financial situation, the strategy you want to set up, and when you plan on retiring. These are matters you can discuss with your advisor,” Mohamed Wakkak explains. 

And each one has its benefits and its limits:

  • RRSP: The registered retirement savings plan allows you to save in a tax-sheltered vehicle; whatever you invest is deducted from your taxable income. Each year, you can contribute up to 18% of your eligible income. In 2021, the contribution limit is $27,830. Don’t forget that if you withdraw part or all of your savings from your RRSP, you will be taxed. 
  • TFSA: The tax-free savings account allows you to save in a tax-sheltered vehicle, same as the RRSP, as the interest you earn is not taxable. However, it doesn’t reduce your taxable income. In 2021, you can contribute up to $6,000 to your TFSA. Another advantage: you aren’t taxed if you withdraw from your TFSA, as opposed to your RRSP.

3. Which savings products are the most lucrative? 

There’s no miracle formula. It all depends on the stock market’s performance and your risk tolerance. “Don’t try to find the most lucrative investments; instead, try to find the retirement investment strategy that will allow you to accomplish your goals. Usually, if you want higher profits, it requires a higher risk tolerance. Please note that for some people, lower inflation-adjusted net profits are enough to allow them to reach their retirement goals. So they don’t have to take on much risk.”

When asked about new retirement savings products, Mohamed Wakkak explains that today’s trends lean towards turnkey solutions. “Clients prefer having investments solutions that will help them reach their goals while taking into account their risk tolerance. They’re less concerned with the structure of the product and the assets therein. However, we’ve noticed that they pay more attention to environmental considerations when choosing their types of investments.” Once again, your advisor is your best ally when it comes to looking for investment solutions suitable to your needs and lifestyle. 

4. When is it too late to save? 

Some people who are close to retirement haven’t necessarily planned for this stage of their lives and are wondering how they can catch up. But it’s never too late to prepare for your retirement and start saving. “You can catch up. If you’re 50 years old and don’t have an RRSP or investments, but would like to start saving so you can retire at 65, that means you have 15 years to save, which gives you less time to reach your goal,” Mohamed Wakkak explains. “However, the earlier you start, the less pressure there is on your budget. And you’ll have the opportunity to readjust along the way.”

“If you start planning at 55 years old and want to travel the world but haven’t saved much, you may have to re-evaluate your goal. Maybe you could tour a country instead of the whole world. That’s why you need to act fast, even if you’re 50 or older,” the expert adds. 

You could also consider moving into a smaller place and taking advantage of the growth of the real-estate market from the last few years to sell your property. This could allow you to generate more money to invest into your retirement. 

5. What about the 70% rule? 

Often, you’ll hear that you need 70% of your current income when you retire. This isn’t a universal rule because it depends on your lifestyle and financial habits. For example, someone who earns a lot of money but doesn’t spend much won’t necessarily need 70% of their income. On the other hand, someone who spends more than they earn may need to save more to maintain the same lifestyle once they retire. “The best rule is to calculate your cost of living to determine how much you’ll need in terms of savings and income. Aiming for 70% is no longer the rule,” Mohamed Wakkak insists. 

6. What’s the best way to prepare for your retirement?

“By speaking with an expert, you ensure that nothing falls by the wayside,” Mohamed Wakkak asserts. An investment advisor will be able to guide you through all the steps: setting up your investment strategies, calculating your risk tolerance, helping you make the right decisions when withdrawing from your retirement investments, advising you on the right time to apply for your government benefits, etc.

Most importantly, never stop asking questions. Your retirement is an important stage in your life, so prepare carefully. 

Legal disclaimers

Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank of Canada.

The articles and information on this website are protected by the copyright laws in effect in Canada or other countries, as applicable. The copyrights on the articles and information belong to the National Bank of Canada or other persons. Any reproduction, redistribution, electronic communication, including indirectly via a hyperlink, in whole or in part, of these articles and information and any other use thereof that is not explicitly authorized is prohibited without the prior written consent of the copyright owner.

The contents of this website must not be interpreted, considered or used as if it were financial, legal, fiscal, or other advice. National Bank and its partners in contents will not be liable for any damages that you may incur from such use.

This article is provided by National Bank, its subsidiaries and group entities for information purposes only, and creates no legal or contractual obligation for National Bank, its subsidiaries and group entities. The details of this service offering and the conditions herein are subject to change.The hyperlinks in this article may redirect to external websites not administered by National Bank. The Bank cannot be held liable for the content of external websites or any damages caused by their use.

Views expressed in this article are those of the person being interviewed. They do not necessarily reflect the opinions of National Bank or its subsidiaries. For financial or business advice, please consult your National Bank advisor, financial planner or an industry professional (e.g., accountant, tax specialist or lawyer).

Answer Bank

No Result found

Contact us



Your online bank