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Retirement: It’s never too late (or too early) to start saving

08 January 2021 by National Bank
It’s never too late to save!

You’re thinking more and more about your retirement. You know that saving is important, but you don’t know where to start. Here are five expert tips to help you take action and adopt good saving habits starting now. 

1. Know where to start

“The first thing to do is to set a goal. That’s the starting point for any project, financial or otherwise. Having a specific goal will motivate you to take action,” says Steve Mc Cready, financial planner and senior advisor at National Bank. 

“You can compare it to getting in shape. Is your goal to run a half marathon, lose weight, or increase your flexibility? How much time are you giving yourself to get there? How will you do it? How will you measure your progress? Getting help from an expert like a trainer is recommended. After that, little by little, exercising become a habit.”

Saving is similar,” the expert adds. “It’s easier to lose your motivation when you don’t have any support to help you with structure and preparation. Whether you want to travel, buy a cottage, or prepare for your retirement, getting the support of a personal finance advisor is priceless.”

2. Create an action plan

“The next step is to figure out how much time you need to reach your goal. That’s where your advisor’s expertise will come into play. Based on your budget, your income and the time you have to achieve your goal, they will determine how much money you need to save. Usually, we recommend setting one strategy per goal,” Steve Mc Cready points out. 

“Once that’s done, set up automated transfers from your online bank account or with the help of your advisor. Then, let these online tools do the work for you. That’s the idea behind systematic savings. The transfers will be done automatically, once a month or with each paycheque, without you having to think about it. It’s easier to build the habit this way. You’ll feel the impact of these transfers at first, but you’ll get used to it pretty quickly.”

“For anyone who’s more visual, adding a photo associated to your savings account can go a long way. It’s reassuring to see that your goals can be achieved: purchasing an asset, travelling or retiring. Of course, the bigger the project, the more it will require discipline on your part, as is the case with retirement,” the expert explains. “But don’t worry – your advisor is there to structure your approach and support you.”

3. Learn about compound interest

“One tip to stay motivated: remember the benefits of compound interest. Compound interest is the idea of collecting interest on interest. For example, let’s say you contribute $1,000 and make $20.40 in interest. The next year, you’ll collect interest on $1,020.40. You’ll collect interest on the interest you’ve already earned, so your money grows faster.”

“The longer your money is invested, the more it will gain in value,” Steve Mc Cready explains. “In fact, compound interest is also calculated on the total in interest you’ve earned since your initial investment.”

4. Evaluate your options

To ensure as comfortable a retirement as possible, avoid depending only on the value of your home or your pension plan. Your investments, your RRSP, and even your TFSA can make a difference once it’s time to replace your earnings. This is called diversifying your retirement income. Your advisor can help you understand the various financial investment related to retirement: 

  • Registered retirement savings plan (RRSP)

This allows you to save money tax-free, and it reduces your taxable income. The money you invest grows over time. 

  • Tax-free savings account (TFSA)

The money you contribute to this account grows over time. In particular, this vehicle is recommended for medium-term projects or as a complement to your RRSP. 

  • Locked-in retirement account (LIRA)

This isn’t a plan you can contribute to; rather, it’s an account to which you transfer money from a retirement plan or pension plan to keep it sheltered from tax. 

“Thinking of retiring before age 65? In some cases, a good tax strategy could be to withdraw money from your RRSP and TFSA before applying for your government benefits. Once again, I recommend you discuss this with your advisor.”

5. Find the right support

“An advisor’s job is to help you realize how important saving is, to structure your approach, to evaluate your progress, and to adjust your strategies along the way.”

“Getting support from an advisor can significantly impact your savings. Generally speaking, investors with guidance from an advisor collect more assets than those who don’t receive any advice. Investors who receive advice are also more likely to save for their retirement regularly, compared to those who don’t have an advisor. On top of having a positive impact on your assets, an advisor can motivate you to pursue your efforts, like a fitness trainer would at the gym,” Steve Mc Cready submits. “Saving for your retirement is a team effort.” 

“It’s never too late to start saving, but there’s no magic formula. The sooner you start, the better. Finally, here’s one last piece of advice: don’t be afraid of being judged. Keep in mind that our job is to help you achieve your goals.”

Are you ready to take action? Saving is easier than you think. You just need the right motivation and the right advisor!

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