Some of you may be wondering, “When should I start saving for retirement and how much do I need to save?” Depending on the individual circumstances of your life the answer can vary, but there is one simple answer that will never be wrong:


Maximizing the amount of time your savings have to grow will maximize the effects of compounding over time and therefore minimize the amount you need to contribute. The more your money grows, the less principal needed to grow from. To help illustrate we have a table below showing the total retirement nest egg accumulated by age 65 using various monthly savings amounts and starting ages.

Retirement Nest Egg at Age 65
(assumes 6% annualized rate of return)
20 30 40 50 60
Monthly Savings ($) 100 $263,515 $138,029 $67,958 $28,831 $6,982
300 $790,546 $414,087 $203,874 $86,493 $20,947
500 $1,317,577 $690,154 $339,790 $144,154 $34,912
800 $2,108,123 $1,104,232 $543,665 $230,647 $55,859


As you can see in the table above, the difference between starting early and waiting for later in life to save for retirement is staggering. Those of us who are lucky enough to have a defined benefit pension plan will have a head start, but these plans are not all free money. Defined benefit plans are funded by you (and sometimes your employer’s matching) through the deductions they take from your salary. This is not much different than an RRSP except that the contributions are less voluntary; they take them off your paycheque before you ever receive it. Typically, public service pension plans require contribution rates of 10-20% of gross income.

The longer you wait the more difficult the savings requirement. Starting at age 30 instead of age 20 means having to save almost twice as much every month until age 65 in order to accumulate a similar size nest egg. This trend of doubling the amount of savings required continues roughly every 10 years longer you wait. At age 60 it is far too late to make up for lost time.

Annual Income
$40,000 $60,000 $80,000 $100,000
Monthly Savings ($) 100 3.0% 2.0% 1.5% 1.2%
300 9.0% 6.0% 4.5% 3.6%
500 15.0% 10.0% 7.5% 6.0%
800 24.0% 16.0% 12.0% 9.6%


Paying Yourself First

Now that we can see how important it is to start saving as much as possible as early as possible, I want to tell you how to achieve this. For most people saving seems hard but it really isn’t that difficult. For many people the reason it is difficult is because they don’t have a budget or they spend money without giving it much thought. Spending is not the key to saving, saving is. Don’t plan to spend and then save what is left over. Plan to save and then spend what is left over. This is often referred to as ‘paying yourself first’ and it is no different than how a defined benefit pension plan works.

All you have to do is decide on the amount that you will save each month and then be sure to always pay yourself (set it aside) before you pay any other bills or expenses. An even better way to manage this is by setting up an automatic system where you don’t even have to think about setting it aside as it is already set aside for you. There are many different ways to do this with the assistance of a Financial Advisor and some employers can help you with this too.

2019 has started and the clock is already ticking. Start paying yourself first!