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How much money should I have saved for retirement?

I was in my early twenties when my Dad gave me a copy of The Wealthy Barber Returns, written by Canadian personal finance guru David Chilton. Up until then, I had ignored any personal finance advice I received –save 15% of your income, pay down your credit card debt—but my old man is smart, so I gave the book a shot. And, let me tell you, it scared me straight. At least when it comes to saving for retirement.

Let me explain.

It’s been a few years since then and, although I forget most of the specific details, there’s one example that has stuck with me ever since.

This is the gist: Two twin brothers, Hank and Simon open registered retirement savings plans (RRSPs).

Hank opens his at 25 and contributes $4,000 each year for 10 years.

Simon, on the other hand, waits to open his until he’s 35 — the same age at which Hank stops making his own contributions. Simon contributes $4,000 for the next thirty years.

Both portfolios earn an average of 8% compounded annually.

At age 65, the age many Canadian choose to retire, Hank’s RRSP is worth $629,741, and Simon’s is worth $489,383.

Although Simon contributed three times as much money as his brother, he ends up with $140,358 less – all because Simon started investing earlier. That’s the magic of compound interest.

The lesson? As Chilton himself put it, when it comes to retirement savings, “Start now! Don’t delay!”

With that in mind, let’s dive into how much you need to save to retire in Canada. I will start with one caveat, though: I’m not a fan of hard and specific savings goals set by age because they can be discouraging. And when you’re discouraged, you will be less likely to save anything at all.

The truth is that everyone’s financial situation is different; if you have student loans, you won’t be able to save aggressively as someone who doesn’t. Your savings will also be impacted by how long it took you to enter the workforce, what sort of industry you work in, and what city you live in. Countless factors play into how much you can – and should – save. With that said, experts have some thoughts on how much you ideally should be saving at each age.

How much money should I have saved by 25?

This is the age many of us kick-start our careers; it’s the first time we’re living alone (outside a dorm room) and the first time we’re financially independent.

It’s the first time we can do whatever we want, whenever we want. At least outside working hours. And, for many, that doesn’t include saving for retirement. It’s so far away, after all. And there’s student debt, and credit card debt, and bills.

But, as Chilton pointed out, to the early investor go the retirement spoils. So, what should you aim to have saved by 25?

It’s OK if you haven’t saved anything for retirement in your early career years, according to CFA David Aston.

It’s important to realize that even if you’re not able to save for retirement directly at this age, taking other prudent financial actions can be a big step in the right direction,” Aston wrote in a recent column for MoneySense.

For many, that means paying down debt – whether it’s student debt, consumer debt, or a mortgage.

That said, take a page out of Hank’s book of early investing paying dividends if you can.

How much money should I have saved by 35?

Most Canadians will be well into their careers by their mid-thirties. They may also have kids and a mortgage — two significant factors that will impact retirement savings.

How much someone should be saving [in their 30s and 40s] is largely driven by personal factors like their existing retirement savings, the size of their mortgage, their planned retirement date, whether they or their spouse have a pension, whether they plan to downsize their home, and whether they expect to receive an inheritance,” Financial Planner Jason Heath wrote in a recent column for the Financial Post.

There is no one-size-fits-all for retirement planning. For what it’s worth, though, investment firm Fidelity suggests having twice your starting yearly salary saved for retirement by this age.

How much money should I have saved by 45?

Many will be closer to retirement than the beginning of their career at this age. While it’s still a couple decades away, it’s essential to be more aware of its inevitability.

Perhaps your home will be paid off — or close to – you’ve finished saving for your children’s education, and your debts are all under control. If that’s the case, you can place more attention to retirement savings.

If retirement savings weren’t a top priority in your early years, you need to get aggressive now.

You should understand that starting to save at this point means you will need to save much more per year than if you had started earlier, to compensate for having much fewer years left to save,” Aston wrote.

Figure out how much you’ll need in retirement – a retirement savings calculator can help.

According to many estimates, you’ll want to have 70-80% of your pre-retirement income for each year of your retirement.

Generally speaking, Canadians estimate they will need Canadians estimate they will need $1.7 million to retire, according to a BMO investment survey. Millenials think they'll need $2.1 million. 

For its part, Fidelity suggests having four times your starting salary saved by 45.

Supplementing your retirement income

In addition to individual retirement savings, Canadians have access to Old Age Security and the Canada Pension Plan.

Both are supplemental retirement plans that give Canadians access to additional funds in retirement. Both are funded by taxes and are only available to Canadians who are at least 60 years old.

Additional criteria must be met for both and, while they shouldn’t be relied upon to fund the entirety of your retirement, they will provide an extra financial cushion.

The bottom line

Retirement is different for everyone. When deciding how much you need to save, consider your own personal situation. How does it fit within your other financial obligations such as debt repayment, saving for a home, or building an emergency fund? How much money do you need to make your idea of retirement a reality?

One golden rule to live by, though: Save as much and as soon as you can. And speak to a financial expert to help tailor an investment plan to your individual wants and needs.