Young Canadians are notorious for being incapable of thinking long term with their financial strategies. Fun is the name of the game when it comes to living life to its fullest. What they don’t know is that without any (or limited) savings plans early on in earning years they will be setting themselves up for Freedom 85–not 55. Savings are so low that all financially savvy people are begging Canadians both young and old to think harder about tomorrow and less about the wants of big toys today.
Why? Because expectations are mostly incorrect. What does that mean? Canadians think the government will take care of them, or their company pension will cover their expenses. Fact is: if you want to maintain your quality of life around the same pre-retirement earnings then you MUST save around 10 – 20% of income every year. That’s what former Bank of Canada David Dodge seems to think, and we tend to agree. But all is not yet lost for Canadians wanting to have a bit of fun today, there are ways to approach your retirement savings that won’t leave you bored.
The reality is most Canadians will need multiple investment tools to help them retire with close to the same lifestyle as before they retired. RRSPs don’t permit enough contribution room to help Canadians retire comfortably, says Dodge. However, that’s not entirely true for two reasons.
1) The timeframe of investments, if early enough, will outweigh the lower interest rates of bad investments. That means you DO have enough contribution room if you decide to start early enough (early 20s). Compound interest will turn your investment into a million dollar nest egg by age 65.
2) On average if you’re getting 2-5% on an investment as a retirement savings plan, and you’re young (under 40), then you’re in the WRONG investment. RRSPs and TFSAs can be invested in anything. That means you should NOT be in guaranteed low interest barring instruments when you’re young, that’s just suicide. Looks at GICs when you’re pulling money out closer to retirement.
Contribution room won’t be an issue if you start early enough. Starting too late then you’ll have to do more than rely on the government and your pension (assuming you get one which most don’t nowadays).
Thankfully, most young Canadians have grown up in an era where big government intervention is not expected thus a certain persona responsibility takes over. As well, the decline of pension incentives with companies means Canadians already have to look outside to find long term financial solutions.
All in all, if young Canadians, and Canadians in general, don’t enact major lifestyle changes to reduce spending today and add to their savings for the future, there will be a growing aging segment of the population that’s working far later (not that work is bad, but work when you’re 85 is hard) and living below the poverty line.
Canadians, and Canadians in general, don’t enact major lifestyle changes to reduce spending today and add to their savings for the future, there will be a growing aging segment of the population that’s working far later (not that work is bad, but work when you’re 85 is hard) and living below the poverty line.