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How Much Should I Save?

Have you ever wondered how much you should be saving each year for retirement?

Most middle-class Canadians can live comfortably on 50% to 60% of their pre-retirement income. That’s because the average retired couple over the age of 65 spends approximately $51,000 each year, according to Statistics Canada.

The good news is that each retired Canadian can expect approximately $17,000 per year through Government income programs, such as Old Age Security and the federal pension plan. For a couple where both spouses worked, that’s just under $35,000 per year.

To make up the rest, you need to save.

Rule of Thumb for How Much To Save

A good rule of thumb is to save 10% to 12% of your after-tax earnings. Those in higher-income brackets should save using the Registered Retirement Savings Plan. Those in the lower-income bracket could take advantage of the Tax-Free Savings Account (TFSA).

While starting early is key, even those who begin to save at a later stage in life will be surprised at how quickly the money starts to add up.

Keep in mind, that if your employer has a pension plan, you can get away with saving less.

What If Saving 10% Is Too Hard?

For those struggling to even save 10%, keep in mind that it’s the habit of saving that counts, not the amount. If 10% is too hard, consider putting aside 5%, or even less. The key is to develop the right money habits and to reinforce these habits, often. Then, as your income increases, you can dial up the percentage you save.

Keep it up throughout your working life, and you won’t have to worry. You’ll find you have plenty to live on when you retire.

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