A recent report by Global News revealed that over 55% of Canadians don’t have the income necessary to keep up with inflation.
This means that many Canadians have to dip into their savings or reduce the amount of money that they contribute to savings accounts. This leads to the question, “Just how much should you have saved by 30 in Canada?”
On average, financial advisors recommend that you should have at least one year’s salary saved up by age 30. This is different for everybody and depends on your earnings and expenses, but it’s a good rule of thumb to follow nonetheless.
Below, I’ll go over some valuable saving tips, explain how much you should have saved for retirement, and explain why creating a nest egg for yourself and your family is important.
The amount of money you should have saved by age 30 in Canada is very subjective. I wouldn’t expect a 30-year-old with an $80,000 annual salary to have a million dollars saved.
How much you should save is relative to the income you earn and your expenses. Fidelity recommends that Canadians should have at least a single year’s worth of their current salary saved by age 30, though.
So, if you’re 30 years old and earning $75,000 per year after taxes, then you should have around $75,000 stashed away in assets like stocks, savings accounts, or other investments.
In addition to the recommendation to save a year’s salary by age 30, Fidelity goes on to recommend that you should save at least an additional year’s salary every five years. The goal of this is to have saved at least ten annual salaries by the time you retire.
Following this rule, here is how much you should have saved for retirement as you age:
|Individual’s Age||How Many Annual Salaries You Should Have Saved|
Up until age 45, you should be saving a year’s salary every five years. This means that Canadians should be saving an average of 20% of their total income.
By age 50, it’s not uncommon for Canadians to find higher-paying positions and have fewer responsibilities (the children are likely to be adults and live outside of the house by this time).
To account for this, Fidelity recommends saving even more and doubling the retirement savings rate to 40% between ages 45 and 50.
Of course, it’s also worth noting that the money you earn will likely increase as you get older. As your income increases on a yearly basis, you should adjust your savings to account for 20% of your income instead of following a set savings schedule.
As you’re building your savings and preparing for retirement, there are several key factors that determine the amount you should be saving, including:
- How much you earn every year
- How comfortably you want to retire
- The age you want to retire
The amount you save should always be proportional to the amount that you earn. An individual earning a lower salary likely won’t be able to save as much of their income as an individual earning a higher salary.
Another key factor that plays into how much you can save is lifestyle creep (otherwise known as “keeping up with the Jones”).
As most people begin to earn more money, they also begin to spend more money. This common financial trap can severely limit your ability to save for retirement and will have you sacrificing long-term comfort for short-term pleasures.
Personally, I recommend that young professionals earning good money should live somewhat frugally and set aside even more than 20% of their income.
By living below your means, you can capitalize on your youth, hustle, and put in extra work that you may not be able to commit to once you’re older and have a family to take care of.
The amount of money you have saved for retirement also depends on how comfortably you want to retire. While some people choose to downgrade their home and expenses after retirement, others want to retire in comfort, buy a recreational vehicle, and live in a large estate.
If you plan on keeping up with your current lifestyle after you retire, then you should follow the 20% savings rule. However, if you want to retire lavishly, then I recommend saving up to 30% or more of your income.
The age you want to retire will also play a key role in how much you should have saved. 65 is generally considered the age of retirement.
However, some Canadians work well into their late-60s or early-70s. Conversely, some Canadians try to retire earlier, in their early to mid-50s.
If you’re trying to retire before 65, then you should definitely be saving more than 20% of your income. You’ll need enough savings to account for the fact that you’ve stopped working before the average age of retirement and to cover your expenses for several years longer.
Either way, it’s always better to be safe than sorry.
The other alternative is that you spend all of your life saving only to reach age 65 and realize that you don’t have enough to retire comfortably, forcing you into a position where you need to work several more years to save up the money you need for retirement.
Planning for retirement is one of the main reasons why people save money. While this is a great goal to have, there are also several other things that you may want to start saving for as well, including:
- An emergency fund
- Your child’s education
I recommend having an emergency fund saved that’s separate from your retirement savings. Optimally, you don’t want to dip into your retirement savings for any reason, as this could result in delayed retirement.
Your emergency savings fund can be used to cover things like:
- Unexpected car repairs
- Unexpected home repairs
- Emergency medical expenses
- Bills if you’re temporarily out of work (EI only pays 55% of your previous salary, up to $638)
If you’re a parent or you plan on having children, it’s a good idea to start saving for your education. The cost of university tuition in Canada has increased significantly over the past few years and is expected to continue rising.
By investing in an RESP education savings account, you could receive free education grants from the government and will ensure that your child has more options available to them when they come of age.
According to a recent report by Statistics Canada, the average household savings rate in Canada is 5.7%. This means that, as a whole, Canadians aren’t saving anywhere near as much as they should be. The savings rate typically fluctuates depending on factors such as:
- Unemployment rates
- Economic forecasts
- Quantitative tightening and easing policies initiated by the central bank
One of the best ways to start saving more money is to open a tax-free savings account (TFSA). The TFSA program was launched in 2009 to help Canadians save more money and even earn tax-free revenue. Although TFSA contributions aren’t tax deductible, TFSA accounts can be used as an investment vehicle.
The money you earn on your TFSA investments is not subject to capital gains, interest, or investment tax, which allows you to save even more money.
3 Tips To Save More Money In Canada
If you’re like many 30-year-old Canadians, you may not have a full year’s salary saved up like financial advisors recommend. Don’t get discouraged, though. As the saying goes, “Now is always the best time to start.”
To wrap up, here are a few practical tips to help you save more money so you can get on track to retire comfortably.
Most financial advisors recommend that consumers follow the 50/30/20 rule, dividing their budget as follows:
- 50% budgeted for necessities
- 30% budgeted for wants
- 20% budgeted for savings
If your employer offers to match contributions into a retirement savings account, I recommend maximizing your own contribution so that you can receive the maximum employer contribution. After all, it’s free money, so why wouldn’t you take advantage of it?
If you haven’t done so already, you should create a detailed budget for your household and make sure that you stick to it. Think about it this way – how can you save money if you don’t create a plan to save money in the first place?
Today, there are tons of great budgeting apps that allow you to set financial goals and will keep you accountable by tracking your monthly spending habits.
If you’re 30 and have a year’s worth of your current salary saved, then you’re on a good track to retire comfortably by age 65. If not, then you should do your best to start setting aside more than the recommended 20% now, or you might have to sacrifice some of your living quality to retire at 65.
Want to become a pro at saving money? Keep on reading to see my list of 101 practical tips to save more money!