Remember the keys, Contribution + Time + Investments. Let’s look at where you stand with each of these keys.
What do you need to do to reach your goals?
Are you saving through your workplace program?
There are many ways a group retirement program can help you save more, save easily and save efficiently:
- You “pay yourself” first through payroll deductions
- Depending on the program, your employer contributes to your plan as well
- With some plans, you save on taxes right away: since your taxes are calculated on a lower amount – your gross income minus your contribution – you pay less tax throughout the year instead of receiving your refund only when you file your personal income tax return.
So if you have access to a group program take full advantage of it
Do you have individual savings?
Besides your bank account, complement your group program with individual savings plans that help you grow your money while saving on taxes – RRSPs and TFSAs. You can contribute to your plans regularly by setting up periodic transfers from your bank account.
How much should you contribute?
Depending on the income you would like at retirement and when you start saving for it, these tables give you an idea of how much you’ll likely need to save every month through your group program and your personal savings.
Remember how much of your income has to come from your personal savings?
| If this is the retirement income you want | $28,000 | $42,000 | $56,000 |
| This is approximately what you can expect from the Government (CPP/QPP and OAS) |
$16,000 | $19,000 | $19,000 |
| This is approximately what will have to come from your group & personal savings |
$12,000 | $23,000 | $37,000 |
To reach that amount, this is how much you need to contribute
Your monthly
contribution
should be
| Desired annual retirement income | |||
| Age | $28,000 | $42,000 | $56,000 |
| 20 | $170 | $320 | $500 |
| 25 | $210 | $390 | $620 |
| 30 | $260 | $490 | $770 |
| 35 | $330 | $620 | $980 |
| 40 | $430 | $810 | $1,270 |
The examples above are provided for illustration purposes only and are not guaranteed. Retirement incomes assume a level income from age 65 to 90 and a net 5% rate of return. All amounts are pre-tax and are indexed at 2% for inflation, up to retirement. For more information on government benefits and the maximum amount you are allowed to contribute, go to www.servicecanada.gc.ca
Now that you know how much you need to contribute
Fit your contributions into your budget
Need help? Try the budget calculator provided by the Financial Consumer Agency of Canada (FCAC).
Set up regular contributions
To make sure you contribute regularly, set up regular contributions to your investment plans.
You know when you want to retire, so when should you start saving?
Now.
Generally, the longer you let your money work for you, the more you’ll have in the end. But the longer you put off saving, the more effort it’s going to take to reach your goals.
Here is how time works for you
Let’s say you’re starting from scratch and you want to save enough to get 70% of your salary as retirement income when you’re 65.
| Say you start saving at age: | % of your salary you need to save |
| 20-something | 5 to 11 |
| 30-something | 8 to 18 |
| Early 40s | 13 to 26 |
| Late 40s | 17 to 34 |
| Time matters | |||||
| Assuming a 5% net rate of return, look at the difference a smaller monthly contribution makes over a longer period of time! | |||||
| 40 years | $148,856 |
Contribute $100 at the beginning of each month over 40 years between age 25 and 65 ($48,000 total) |
|||
| 20 years | $81,492 | Contribute $200 at the beginning of each month over 20 years between age 45 and 65 ($48,000 total) | |||
In both scenarios the total amount you contribute is the same - $48,000. But by starting earlier, you give your money more time to grow.
By now you have an idea of how much you need to save every month to reach your goals. Now how do you choose investments to get you there?
What’s your investment style?
Within each investment vehicle (RRSP, TFSA, pension plan, etc.), you can have various funds you can invest in to build your investment portfolio.
Remember that each fund has a different level of risk versus the return it can give you.
So to pick investments, you need to know the amount of risk you’re comfortable taking. Once you know that, you’ll know your investment style.
If you are a member of a group plan with us, you can complete the investor profile questionnaire on the VIP Room, and save your information.
How can your style affect your retirement income?
You saw in the Retirement calculator how returns can affect your retirement income. Your investor profile is often linked to the risk you are willing to take for these returns. Generally, the higher the risk, the greater the potential for gain or loss; the lower the risk, the lower the potential for gain or loss.
What else can affect your retirement income?
- Your investment period – The period between now and the age you plan to retire is just as important as your investment style when it comes to building your portfolio. If you have decades to go before you retire, you might be more comfortable taking more risk. If you are closer to retirement, you might prefer less risk.
- Your asset allocation – The combination of investments, made up of asset classes like equities (e.g. stock funds), fixed income (e.g. bond funds) and guaranteed funds, needs to be in line with your investor profile and your investment period.
- Diversification – This is an excellent way to manage risk. Having different types of investment funds in your portfolio means if one asset class is doing poorly, your entire portfolio doesn’t have to suffer for it. It also reduces the effect that any one fund has on your overall portfolio performance.
Build your portfolio
Now that you know your investment style and how much time you have to invest, you’re ready to build a well-diversified portfolio. There are different ways you can do this:
- If you’re in a group program with usthat offers Avenue portfolios, you can pick a ready-made portfolio that combines the features of Target Year and Lifestyle Funds, with an asset mix that corresponds to your investor profile and years to retirement. It’s literally as easy as making a checkmark.See how Avenue portfolios work
- You can build your own portfolio from a list of available funds. You can also consult your financial advisor or, if you’re in a group plan with us, your representative, who can guide you as you choose funds within your group plan and allocate your assets.
- You can choose to invest in a fund that is managed according to your target retirement age or your investment style:
- With a Target Year Fund, the investment manager automatically adjusts the asset allocation of each fund towards a more conservative portfolio as you near retirement.
- With a Lifestyle Fund, the asset mix is determined by the level of risk.
You’re on your way! Now you just need to make sure you keep to the path.
