An average Canadian in the 35–44 age group has $49,014 in a Registered Retirement Savings Plan (RRSP), as per Ratehub. While this may look like a comforting figure, the reality is different. An average Canadian earns $54,600 annually, while a retired Canadian gets an average after-tax income of $33,600 per year, according to Statistics Canada. If you want to earn the same amount as your salary when you retire, you have to invest that much into your retirement.
Around 15–30% of your retirement income could be taken care of by government pensions, depending on how much you plan to earn. As for the remaining, $38,220 to $46,410 has to come from your RRSP and other retirement savings. Assuming your portfolio gives you a 6% annual return, you will need a retirement pool of $773,500 by the time you retire to get $46,410 in annual income.
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Saving for retirement is a financial priority for the employed
The journey from $49,014 to $773,500 is far. Add to this a few years like 2022 when high interest rates put retirement savings on a back burner as Canadians struggled with their daily expenses. According to the Canadian Retirement Survey 2023, 45% of working Canadians in the 18–34 age group did not save for retirement in 2022. Saving for retirement has become the top priority of Canadians who are employed.
The way investments work, a $400 monthly investment at age 20 can give you $1 million at age 65 at 6% annual interest. You delay your retirement savings by 20 years, and the same $400 monthly investment will give you $273,549 at age 65. Time is money. Keeping your money invested helps you compound your income.
How to plan for retirement at 40
What’s gone is gone. Now, at 40, what can you do to catch up with your retirement savings? You have $49,000 in your RRSP, and you need around $750,000 to $773,000 by age 65. Here is how you can proceed.
| Monthly Retirement Savings | Portfolio Annual return | Portfolio at Age 65 |
| $800 | 6% | $754,000 |
| $500 | 8% | $793,000 |
| $200 | 10% | $780,000 |
You still have 25 years in your hands. Instead of allocating a large amount in bonds and bank deposits, you could consider investing in growth stocks that can give you an 8–10% annual return. Even a technology ETF can give such kind of returns.
Two stocks to accelerate your RRSP
You could consider investing in goeasy (TSX:GSY), a sub-prime lender. It not only gives dividends but also capital appreciation. The company has been growing its dividend at an average annual rate of over 30% in the last 10 years, with a few years of slow growth or no growth (2009–2014). The stock price has surged more than 227% in the last five years, representing an average annual growth rate of 26%.
goeasy has strong growth potential as the company expands its loan portfolio to include auto and point-of-sale loans. It is also growing its geographic reach. You could consider buying one stock every month and holding onto it for 10 years.
You could also invest $100–$120 every month in the iShares S&P/TSX Capped Information Technology Index ETF (TSX:XIT). It has 50% holdings in two of the most promising tech stocks, Shopify and Constellation Software. Although it carries a high management expense ratio of 0.6% of your investment, it is a cost-efficient and less risky way of investing in high-growth tech stocks. The XIT ETF has given an average annual return of 19% in the last 10 years. With the onset of the 5G revolution and artificial intelligence, tech stocks, especially software, could see a surge in demand, creating significant growth opportunities.
If you haven’t yet started planning for retirement, now is the time to plan actively to retire comfortably.
