How to start saving for retirement: Step-by-step guide

In this article, we’ll explore how to start saving for retirement, why it’s so important, and which steps you can take to ensure you’re prepared for your post-work years.

Saving for retirement is a crucial aspect of financial planning, but it’s a process that’s often overlooked in the hustle of everyday life.

However, the sooner you start saving for retirement, the easier it will be to build a comfortable financial future for yourself.

If you’re not sure where to begin, don’t worry. We’ve covered everything you need to know — from determining how much to save to choosing the right retirement savings accounts.

As we go through this guide, you’ll learn about effective retirement planning strategies, the best savings accounts available, and tips to help you build your retirement fund with confidence.

Understand the importance of having a retirement plan

Retirement planning isn’t just about saving money; it’s about creating a financial reserve that will allow you to live comfortably when you’re no longer working.

The earlier you start, the better, as compound interest can significantly grow your savings over time.

Without a clear retirement plan, you risk not having enough income to maintain your lifestyle, especially with rising living costs and inflation.

Having a retirement plan ensures you’re not relying solely on government pension programs or living paycheck to paycheck in retirement.

Instead, you can enjoy your retirement years with peace of mind, knowing you’ve built a financial safety net.

When should you start saving for retirement?

The best time to start saving for retirement is as early as possible. The earlier you begin, the more time your investments have to grow.

Ideally, you should start saving in your 20s or 30s. However, if you’re later in your career, don’t panic — you can still make up for lost time with strategic planning and dedication.

Many experts recommend saving at least 15% of your income each year for retirement.

If you start in your 20s, you can benefit from smaller monthly contributions over a longer period, which can grow significantly due to compound interest.

If you’re older and starting later, you’ll need to save a higher percentage of your income, but it’s still possible to build a retirement fund with the right strategies.

How much do you need to save for retirement?

The amount you need to save for retirement depends on your desired lifestyle, the age you want to retire, and your current saving habits.

As a general rule, financial experts suggest that you aim to replace about 70% to 80% of your pre-retirement income each year in retirement.

For example, if you earn $60,000 per year before retirement, you should aim for an annual retirement income of about $42,000 to $48,000.

You can estimate how much you’ll need by considering factors such as expected living expenses, travel plans, healthcare costs, and inflation.

To make sure you’re on track, use retirement calculators or speak with a financial advisor to get a clear idea of your savings goals.

How to protect yourself from inflation in retirement

Inflation is one of the biggest challenges in retirement planning. As the cost of goods and services rises over time, the purchasing power of your savings decreases.

Therefore, it’s important to invest your retirement savings in ways that outpace inflation.

One of the best ways to protect against inflation is by investing in a diversified portfolio that includes stocks, bonds, and other assets that have the potential to grow faster than inflation.

Additionally, make sure to factor in rising healthcare costs, which can be a significant expense in retirement.

By planning for inflation and regularly reviewing your retirement strategy, you can protect your future income and avoid being caught off guard by rising costs.

How to start saving for retirement

Saving for retirement may seem overwhelming, but breaking it down into smaller steps makes it more manageable. Here’s how to get started:

Determine how much to set aside each month

The first step in retirement planning is figuring out how much you need to save monthly. To do this, take your desired retirement income and calculate the total amount of savings you’ll need.

Use a retirement calculator or consult a financial planner to estimate how much you should save each month to reach your goal.

Once you know your monthly savings amount, create a budget to ensure you can consistently contribute to your retirement fund. Consider adjusting your spending habits to prioritize saving for the future.

Find the right account and plan your retirement

There are several retirement savings accounts available, and choosing the right one is crucial.

In Canada, options like the RRSP (Registered Retirement Savings Plan) and the TFSA (Tax-Free Savings Account) are popular choices for building retirement savings.

• RRSP: Contributions are tax-deductible, and you won’t pay taxes on the invested money until you withdraw it — usually in retirement, when your income may be lower.
• TFSA: Contributions to this account are not tax-deductible, but any growth and withdrawals are completely tax-free.

Decide which type of account aligns with your retirement goals and tax situation. If you’re unsure, a financial advisor can help you navigate your options.

Use automatic deposits

One of the easiest ways to stay on track with your retirement savings is by setting up automatic deposits.

Many banks and financial institutions allow you to automatically transfer a portion of your income directly into your retirement savings account.

This “pay yourself first” method ensures you consistently save for your future without the temptation to spend that money on immediate needs.

By automating your savings, you can stay disciplined in your retirement planning with little effort.

Review your plan regularly

Life changes, and so do your financial goals. It’s important to review your retirement plan regularly to ensure it still aligns with your needs.

This includes checking your investment performance, adjusting your savings goals, and considering changes in your income and expenses.

As you get closer to retirement, your risk tolerance may change, so be sure to adjust your investments accordingly.

Consulting a financial advisor periodically can help keep your plan on track and ensure you’re making the most of your retirement savings.

Make extra contributions whenever possible

While it’s important to have a consistent savings goal, don’t forget to contribute extra funds when you can.

Whether it’s a work bonus, tax refund, or unexpected gift, making additional contributions to your retirement savings can significantly grow your fund over time.

Every extra dollar you save makes a difference, and even small amounts can add up in the long run.

What retirement savings accounts can you use?

There are several types of savings accounts and investment plans that can help you prepare for retirement.

Understanding the benefits of each is essential to selecting the right retirement savings vehicle.

Registered Retirement Savings Plan (RRSP)

The RRSP is one of the most common and tax-efficient ways to save for retirement in Canada.

Contributions to your RRSP are tax-deductible, which means you can reduce your taxable income while saving for the future.

Your investments grow tax-deferred until you withdraw them in retirement, which is usually when your income and tax bracket may be lower.

Tax-Free Savings Account (TFSA)

The TFSA is another great option for saving for retirement.

Although contributions are not tax-deductible, any interest, dividends, or capital gains earned within the account are completely tax-free.

This makes the TFSA especially useful if you’re looking to avoid taxes on investment growth in retirement.

Workplace pension and savings plans

Many employers offer workplace pension plans, such as defined benefit or defined contribution plans. These plans can provide a reliable source of income during retirement.

If your employer offers a matching contribution, be sure to take full advantage of it, as this is essentially free money to add to your retirement savings.

Starting to save for retirement doesn’t have to be intimidating. By following these steps — setting clear goals, using automatic deposits, and selecting the right savings accounts — you can start building a secure financial future today.

The key is to start early, save consistently, and review your progress regularly.

Don’t wait for the perfect moment to begin. Whether you’re in your 20s, 30s, or even older, it’s never too late to take control of your retirement planning.

By following the strategies in this guide, you’ll be on the right track to achieving a comfortable and worry-free retirement.

If you’re ready to take the next step in your retirement planning, check out the resources and tools available on our website to continue your journey toward financial security.

Keep reading and planning — it’s never too early to understand how to start saving for your retirement. Take care of your future!

Want a suggestion? Also read our guide explaining how the CRA account works!