It’s registered retirement savings plan (RRSP) season and that means many clients will be thinking about making their contribution by the March deadline. But for younger Canadians juggling student loans, mortgages, credit card bills and the high cost of living, saving for retirement might seem like a stretch. And a reasonable target — say, $1 million by age 65 — could feel completely out of reach. But by sharing some numbers and exploring some options, you may encourage these 20- and 30-somethings to start saving now, reach that $1 million goal and, when the time comes, retire comfortably.
Numbers speak volumes
The numbers in this chart show what it takes — per year, month and week — for Canadians ages 18 to 50 to reach $1 million by age 65.
|
Age |
Yearly |
Monthly |
Weekly |
|---|---|---|---|
|
18 |
$2,919 |
$248 |
$57 |
|
25 |
$4,672 |
$396 |
$92 |
|
30 |
$6,636 |
$563 |
$130 |
|
35 |
$9,597 |
$814 |
$188 |
|
40 |
$14,233 |
$1,207 |
$279 |
|
50 |
$35,915 |
$3,046 |
$704 |
The contribution rates above are for the first year of contributions only. We have assumed that contributions will increase by 2% each year, consistent with the rate of inflation.
Clearly, the sooner they start, the better. If they take advantage of direct withdrawals, they may not even miss that money. And if they can afford to put even more away, a $1 million goal could feasibly grow to $1.5 or $2 million.
Among the options
One investment vehicle your younger clients may want to consider is the tax-free savings account (TFSA). In addition to offering tax-free growth and withdrawals, TFSAs can effectively address current and future income needs because they allow withdrawals to be re-contributed.
Investments providing guaranteed lifetime income can also be purchased through TFSAs, adding another layer of ease for those seeking growth and, in time, a stable income. Just remind clients that taking money out of investments when markets are down and asset values are low can significantly deplete their savings. Whenever possible, encourage them to time their withdrawals for when markets are strong.
Read: Is the TFSA the forgotten child?
Did you know?
According to the 2016 Sun Life Financial Retirement Now Report, 37% of working Canadians said there was a serious risk they could outlive their retirement savings.
The sooner you talk with clients about their savings, the better.
RRSPs also warrant discussion, particularly for clients who want to:
- save money for retirement and be able to deduct their contributions from this year’s income,
- reinvest their tax savings, and
- use their tax savings to pay down non-tax-deductible debt, like a mortgage.
Ultimately, it’s important to have candid conversations with these clients, not just about investment options but also about their desired retirement lifestyle and spending expectations, tax situation, investment style and risk tolerance — well before they retire. This includes their short- and long-term goals and financial needs, both the expected (a new car or condo) and unexpected (a job loss, divorce, illness).
Starting the conversation
Sun Life Financial’s Money for Life approach can help you start planning conversations with clients in any life stage. This approach considers 5 risks every client can face and 5 needs they should address as they plan.
|
Retirement risks |
Retirement needs |
|---|---|
|
Inflation – Money buys less over time |
Basic living – Money for necessities like food and housing |
|
Health – Current health conditions may worsen and new ones can emerge over time |
Health – Money for medical expenses not covered by provincial plans |
|
Longevity – Outliving your money |
Savings – Money set aside regularly or invested for future needs |
|
Market – Losing money due to market performance |
Lifestyle and growth – Money for things to do or invest for growth potential |
|
Mortality – Untimely death of a spouse or partner |
Legacy – Money to leave behind or to provide a living legacy |
To learn more about investment options, contact a member of your Sun Life wealth sales team. And for effective ways to start conversations with your clients, check out these resources:
- Words of wisdom from today’s retirees video;
- Sun Life Guaranteed Investment Funds (GIFs) choose your path tool.