According to BNN Bloomberg, over 30 percent of all Canadians do not have anything saved for retirement. Savings rates across all generations are relatively low, and financial experts warn that more people need to give themselves the discipline of a regular savings routine.
Investing at a young age is an excellent way to build a savings habit that will benefit you throughout your lifetime. Thanks to financial avenues of investment, a small amount put in at a young age could grow into a sizable nest egg as you reach your retirement years.
Shane Dubin, an Investment Advisor and Portfolio Manager at Canaccord Genuity Wealth Management, shares the reasons why young people should consider making savings a priority. He also answers some frequently asked questions about saving money at a young age and lets you know how to build your future security with a few simple savings tips.
Why Saving at an Early Age is Important
While compound interest is usually cited as the top reason to save early in life, there are other benefits that early savers can enjoy.
The first benefit is that you will waste less money by reducing your spending. Many Canadians in their twenties and early thirties have steady jobs for the first time and feel that they can spend more of their income on discretionary expenses and recreation. Smart savers know that they need to stick to a budget, trimming back unnecessary expenditures in favour of savings.
The second benefit that not many people talk about is that you will feel more secure in your career if you are an early saver. Not everyone plans for the career ups and downs that can happen early on, but if you have saved some money, you will be able to take career risks that you would otherwise not manage if you are living paycheck to paycheck.
Your quality of life will also improve if you are an early saver. If you are continually worried about your financial situation, you will be more stressed and unhappy and prone to depression and anxiety. You may experience family strife related to a lack of money.
Frequently Asked Questions
Q: I am 24 years old, and I want to buy a home in a few years. Should I sacrifice retirement savings until I have a nice down payment saved?
A: It is best to continue saving for retirement even while saving for a down payment. The compounding effect of interest on your retirement savings means that you will have much more money later in life if you choose to save now. Consider putting 3 to 4 percent in your retirement account and save the rest for your down payment.
Q: I am 30 years old and have a great deal of student loan debt. Will this debt keep me from saving what I need for retirement or buying a home?
A: It shouldn’t keep you from saving for retirement, though it may slow down your progress toward buying a home. This may not be the best time to buy a home in Canada considering how high real estate prices are especially around the GTA. A good option could be to rent for the time being which provides more flexibility while you get your finances in order. Try to set up your financial accounts so that 20 percent of your salary goes toward your financial priorities, like saving and paying down debt. You may also be able to refinance some of your student debt.
Q: I am 26, and I would like to know what kinds of accounts I should use for savings. I know that some of them have tax advantages in Canada. Can you help me?
A: A TFSA (tax-free savings account) is a great vehicle to use as an emergency fund. It is easy to access the money if you have to stop working. You could also find traditional high-yield savings account through a bank, but you might not be able to access the same tax advantages.
Other Canadian savings plans with tax advantages are the Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs). At retirement, you would want to convert your RRSP to an RRIF for even greater tax advantages.
Saving Early for the Best Returns
Making investments early in life leads to compounding returns. Money increases in value over time, and if you start young in your twenties, you can increase your future security and ensure your family’s financial stability.
Shane Dubin believes that all young investors should carefully consider the benefits and risks involved with their investments. Young investors can take more risks because they will be in the market for a far greater amount of time than those who are nearing retirement, but risks should be measured at all ages.
Consult with an investment expert like Shane Dubin if you have any questions about building and maximizing your portfolio. Remember, life expectancies across Canada are on the rise and your retirement income will need to last longer than ever before.
Shane Dubin is a Senior Vice President, Investment Advisor and Portfolio Manager at Canaccord Genuity Wealth Management. His views, including any recommendations, expressed in this article are his own only, and are not necessarily those of Canaccord Genuity Corp.
CANACCORD GENUITY WEALTH MANAGEMENT IS A DIVISION OF CANACCORD GENUITY CORP., MEMBER-CANADIAN INVESTOR PROTECTIONS FUND AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA.
This newsletter is solely the work of the author for the private information of clients. Although the author is a registered investment Advisor at Canaccord Genuity Corp., this is not an official publication of Canaccord Genuity Corp. and the author is not a Canaccord Genuity Corp. analyst. The views ( including any recommendation) expressed in this newsletter are those of the author alone, and are not necessarily those of Canaccord Genuity Corp. The information contained in this newsletter is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp.assume any liability. This information is given as of the date appearing on this newsletter, and neither the author nor Canaccord Genuity Crop.assume any obligation to update the information or advise on further developments relating to information provided herein. This newsletter is intended for distribution in those jurisdictions where both the author and Canaccord Genuity Corp. are registered to do business in securities. Any distribution or dissemination of this newsletter in any other jurisdiction is prohibited.
The preceding information is for general information only and does not constitute tax advice. All investors should consult with a qualified tax accountant.
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