01 Apr
With increasing financial responsibilities and a significant portion of income going towards monthly expenses, Canadian citizens are becoming increasingly concerned about how to save for retirement. Many citizens wonder how they are going to take care of their expenses in the future when they are no longer able to earn as much as they are now.
When living from paycheque to paycheque, saving for retirement can be difficult because of the significant monthly expenses and day-to-day expenses. It is because of this that many people have not found a budgeting plan which would allow them to save a portion of their income for their retirement. Nevertheless, the government and different banks of Canada have established retirement plans for individuals who aim to save for their retirement. Furthermore, the plans are catered in such a way that they allow people from various financial backgrounds to build their retirement funds.
The key aspect to note is that in order to save funds for retirement, it is essential to start an early saving plan for retirement. This allows individuals to make saving and planning for retirement easier rather than starting to save for retirement in the later stages of their careers. By starting early, for example at the age of 25, a person can save a significant amount by the time they turn 65. As an example, if a person starts saving around $100 every month, by the age of 65, they would have nearly $190,000, assuming that the rate of return is at 6%.
Canadian citizens can also use a retirement calculator which would allow them to input their monthly income and then calculate the amount that should be saved each month in accordance with the monthly income. There is an option to open a retirement savings account in various banks that allows citizens to deposit a certain amount every month. With a certain percentage of rate of return, which is different for every bank, people can save for their retirement easily.
It is also important to consider the economic factors that would impact a person’s financial stability. One of the most common factors that would affect retirement saving plans is inflation. This is because with increasing inflation, the cost of consumer goods and services also increases. Inflation will affect the retirement saving plans through two methods, whereby the first is linked with increasing the cost of goods and services that are purchased. While the second is related to reducing the buying power of the person, resulting in low monthly savings over time.
When saving funds for retirement, the top choice for most Canadians is opening a Registered Retirement Savings Plan (RRSP) which is offered by most banks. The two common reasons for opening such an account are that the contributions can be deducted from the total income of the individual when they make a contribution. This results in reducing the amount of income tax that is paid because tax is deferred until funds are withdrawn from the individual’s RRSP. The second reason is that by deferring tax from the income, more contribution is made to the RRSP, which accelerates the growth of the funds. By the time a person retires and withdraws funds, they will be in a lower tax bracket as compared to their current working stage.
Another method through which Canadian citizen can save for their retirement is through their jobs. There are many companies that offer retirement matching plans at certain position of the company. In this plan, funds from the paycheque are deducted and are then added to the employee’s retirement plan in order to match their retirement contribution. If a company is offering their employees with such a plan, it is essential to take advantage of it.
