When Should You Start Saving for Retirement?
Saving for retirement is important. In today’s modern age, fewer and fewer people receive the kind of defined benefit retirement plans from their employers that used to be common. This means that, for most of us, we’ll need to save money ourselves if we hope to retire comfortably.
Of course, when retirement is many, many years away, it’s often out of sight, out of mind. That means a lot of people don’t think about retirement savings until they’re closer to retirement age. Unfortunately, this is generally a mistake. It’s understandable that you’ll have other financial obligations that make saving for retirement difficult when you’re trying to make ends meet, but it’s a good idea to start saving as soon as you can. After all, the money you invest in your Registered Retirement Savings Plan (RRSP) grows over time. The sooner you invest it, the longer it has to grow, leaving you more money for retirement.
But how young is too young to start saving?
In general, it’s a good idea to start saving as soon as you’re able. This means that a teenager who is still in school but who has a part-time job may want to consider opening up an RRSP. There is no minimum age requirement for doing so. Anyone who has earned income and filed an income tax return with the Canada Revenue Agency (CRA) can open one. However, if you are under the age of 18, you’ll need a letter of consent from your parent or guardian. This parent or guardian will retain signing authority until the person turns 18.
However, one reason a person may not want to contribute a great deal into their RRSP when they’re young is if they wish to save contribution room for when they’re older and making more money. This strategy can help you maximize the tax breaks you get from contributing to an RRSP.
That said, the money itself isn’t the most important part of saving at a young age. Another major benefit to contributing to an RRSP (or saving money in any other way) when you’re young is that it teaches children about saving.
Learning About Saving at a Young Age
Saving is important. Not only should everyone be saving for retirement, but it’s also important to save for education, emergencies, and other financial goals. If you save money, you’ll be less likely to get into debt trouble.
The key is to establish a pattern of savings. Once you’re used to putting aside a certain percentage of your income every month, this habit that will stick with you. If you start saving when you’re young, the idea of doing so will be commonplace by the time you’re older and working full-time.
The fact that the money you save when you’re young will accumulate interest over time is a bonus.
Many people graduate from college or university with significant debt (especially in the form of student loan debt). If you’ve saved money from a young age, you’ll be in a better position to start repaying this debt earlier (or even potentially avoid getting into debt in the first place). This will put you in a much stronger financial position compared to many of your peers.
It’s Also Never Too Late to Start Saving
Much like it’s never too early to start saving, it’s also never too late! Some people might think there’s no point in trying to save when they’re older, but this isn’t true. Yes, your investments won’t have as much time to grow as they would if you started when you were young, but saving something is still better than saving nothing.
If you haven’t gotten into the habit of saving, it’s okay to start small. Even if you can only put aside five dollars a week at first, do it. Not only will this get you into the habit of saving, but saving $5 week for one year (52 weeks) will give you an extra $260, and who wouldn’t want an extra $260 to that you can put towards paying down debt or saving for an emergency?
Once you get used to saving a small amount each week, gradually increase how much you’re putting aside. Before you know it, you’ll have a significant amount of savings that will help you deal with unexpected expenses or live more comfortably in retirement.