The best way to save for retirement in your 20s

While saving for retirement is a top priority for half of employed Canadians, many of us (44%) did not actually set aside money for it in the past year, according to the Canadian Retirement Survey from the Healthcare of Ontario Pension Plan (HOOPP). And, nearly half of Canadians (47%) haven’t made or are not planning to make any contributions to their retirement investments, either, a TD retirement survey says. 

Younger Canadians especially struggle with this dilemma. Despite nearly 70% of Canadians under 35 worrying about the cost of living, whether their income will keep up with inflation (67%) and housing affordability (65%), we still place a high value on saving for retirement. The HOOPP survey found that half of Canadians (51%) under 35 would give up a higher salary to get a better pension. 

How much does the average young Canadian have saved for retirement?

If you’re wondering how your savings stack up, as of 2019, the average Canadian under 35 had $9,905 in RRSPs, locked-in retirement accounts (LIRAs) and other retirement savings plans combined, and $8,395 in tax-free savings accounts (TFSAs), according to Statistics Canada.

It’s important to know the difference between “saving” for retirement and “investing” for retirement. If you simply deposit money into an interest-paying registered account like a TFSA or an RRSP, it will typically earn about 3% to 4% interest. But you can also hold investments in these accounts, if you set them up that way. Investments can increase in value over time, whereas with a savings account, you can benefit from compound interest. A key caveat here is the risk/return trade-off: stocks have higher potential returns, but also higher risk compared to, say, a bond or a guaranteed investment certificate (GIC). So, it’s important to understand your risk tolerance before you start investing. 

If you’re just getting started, or your savings are less than the average above, you can still make a plan and catch up. To help you, and myself, I spoke to a few money experts about the best ways to save for retirement in Canada during challenging economic times. 

Ask yourself: How much am I able to save for retirement?

If you’re paying off student loan debt or working in your first job after graduation, you might wonder whether it’s worth it to start building your retirement savings while you’re still getting your financial footing. 

Seun Adeyemi, Certified Financial Planner at True Wealth Advisors in Toronto, says that you should start saving for retirement as soon as possible—preferably, as soon as you have an income. “That makes the journey to retirement a lot easier, because your money has more time to grow,” he says. He does recommend, though, to prioritize paying off any debt besides mortgage debt first—especially if you have high-interest debt like credit cards. 

“On credit cards, you’re paying 19% to 24% [interest] on your debt, and even if you have an amazing [investment] portfolio that’s generating 10% to 15% returns, you’re still underwater because you’re paying a higher interest on your credit card,” Adeyemi says. People can usually save for retirement while managing mortgage debt, he says, as long as they are on top of their payments and don’t get further into debt.