(Special) – Now that the holiday season is over, if you’re lucky enough to have some extra cash that didn’t go toward gifts, entertainment or travel, this might be a good time to take it and stash it away in your savings account.
Some recent reports have shown that Canadians, in general, are having a difficult time putting away money for their retirement and other purposes.
Getting into the savings habit seems to be difficult for the younger millennial generation aged 25 to 34 who are either just entering or are in the early stages of their careers and have lots of things in their lives competing for their money.
“Millennials have good intentions but they aren’t doing enough,” Sara Zollo, a financial adviser with Sun Life in Toronto, said in an interview. “We are seeing that there is a lack of savings across the board in this generation because they often have no structure in how they go about it.”
A recent report from Templeton Investments Canada found that nearly half of millennials say they haven’t saved anything for retirement. Twenty-eight per cent live with their parents or their spouse’s parents and 47 per cent who do not maximize or know their annual contribution limits in all of their registered accounts claim their income is too low to save for retirement.
The above reinforces the importance of financial planning advice that takes retirement savings into account. With a long savings and investing horizon, millennials are fortunate to have the power of compounding, but with this may come the false sense that they have tomorrow to start saving.
Zolo recommends millennials start the process by doing a budget analysis of their income and expenses, and start an automatic savings plan by taking full advantage of any company pension plan they might have.
About 40 per cent of Canadians have some form of company savings plan, Zolo says, and while most people are taking advantage of those plans many are not maximizing company matching features, which can have a significant impact on your retirement savings over time.
“Part of the reason for this might be commitment,” Zolo says. “Millennials tend to change jobs every three years and may be worried about making any long-term commitment, but they need to start saving early to take advantage of the years of compounding that they have.”
She recommends setting money aside in two piles: one for short-term needs and living expenses and another “do not touch” pile for long-term retirement goals.
The tax-free savings account (TFSA) is a great savings vehicle, particularly for millennials who are starting out in their careers and may not have large enough incomes to take full advantage of the tax advantages of a registered retirement savings plan (RRSP).
The TFSA contribution limit for 2019 recently increased to $6,000, up from $5,500 in 2018. With the TFSA limit at $6,000, the total room available in 2019 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009 is $63,500.
The annual TFSA dollar limit is indexed to inflation and rounded to the nearest $500. The Canada Revenue Agency’s indexation increase for 2019 is 2.2 per cent. Money in a TFSA grows and can be withdrawn tax free.
Zolo recommends that people maximize savings in registered accounts like the TFSA and RRSP and, when these are maxed out, then start tucking money away in non-registered accounts.
As well, she suggests setting specific savings goals with a definite timeline attached to them, taking any lump sum windfalls such as an RRSP tax refund, commissions, bonuses or others and pay down debt, and if you do have a variety of debt consolidate it into one at the lowest possible rate.
“It’s really a good idea to engage a financial planner at the very beginning,” Zolo says. “A professional can help you with tax, your pension contributions, debt and investing and savings strategies. You don’t need a lot of money. You can start small, but the important thing is to start doing something as early as possible.”
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.
Copyright 2019 Talbot Boggs
Talbot Boggs , The Canadian Press
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