Retirement is so far into the future that many people don’t really think about it until later on in life. Unfortunately this can be a very costly mistake and end up turning your retirement years into additional working years. Instead of relaxing and pursuing your hobbies you now find yourself with little to no savings, trying to make ends meet, and relying on other people for assistance. Many people think they can retire with just their government pension but that simply won’t be enough. The government pension in Canada pays out based on how much an individual has contributed over their lifetime, but don’t expect it to cover all the costs of living in retirement.
In order to have a nice cushion to land on I would recommend supplementing your pension (which is not guaranteed by the way) with an RRSP either self-directed or through your employer and maximizing the use of your TFSA (Tax Free Savings Account). If you contribute the maximum allowable amount into your TFSA per year and invest it into an index fund which returns 7% annually, and start doing this at age 25, you will have contributed just $220,000 and now have $1.175 million of tax-free dollars for retirement. This is the power of compound interest and time. Of course, I recommend saving even more dollars outside of your TFSA and maxing out your RRSP as well. That is the simple intro into saving for retirement, but there is more.
On top of putting away money, try to be frugal and mindful of the future that you will be arriving at one day. Do not overspend, live within your means (meaning spend less than your income), and avoid debt in almost all circumstances. Of course, buying a house, car, business after proper due diligence, are all proper reasons to go into debt. If you are getting married, pay for it with cash saved up that you already have. A strategy that I use to allocate my money is by setting up accounts with my bank and allocating each paycheck according to a predetermined plan. For example if I make $500 bi-weekly, I might put $100 into my TFSA, $50 into “Travel”, and $50 into “Gifts”. I now have $300 which I can spend freely to cover my bills until I get paid next. This way it is much harder to dip into savings and money set aside for other purposes.
If you are working in a good career you might find that your income increases over time as your skills grow and experience starts to add up. It is alright to adjust your lifestyle to a degree as a reward for all your hard work but always have the future in mind because it will arrive one day. Attempt to save more than you think you need for retirement and do not throw away money carelessly. Any extra savings should be put away into that long term ETF and forgotten about. You do not have to be a penny pincher but please do not forget to put savings first before living your lavish lifestyle.