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The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

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How to prioritize saving for retirement during the cost-of-living crisis

Key takeaways

  • The cost-of-living crisis isn’t only affecting day-to-day finances but is having a major impact on Canadian’s ability to save for retirement.
  • Thinking about what you want out of retirement, creating a budget, starting with small savings and exploring investment opportunities are just a few strategies that can help.
  • You don’t need to implement every strategy, especially when times are tough, but any small steps you take now can help.

The cost of living has increased

The cost of living has increased in Canada over the past few years due to factors like groceries, childcare, rising debt levels, housing affordability and inflation. It’s having an impact on Canadians’ day-to-day lives, but it’s also making it more difficult to save for retirement.

In 2024, only 34% of Canadians over 50 who want to retire felt financially ready to retire when they want, and 1 in 4 had saved $5,000 or less for retirement. Canadians over 50 cited the rising cost of living (70%) and fear of running out of money (48%) as their top concerns.

While higher cost of living makes planning for the future, especially retirement, more challenging, there are steps you can take to get started.

Create a retirement plan with goals

What does retirement look like to you?

When looking at how to manage these daily costs alongside saving for the future, retirement may seem like a far-away concept, and so saving doesn’t seem like something to worry about right now.

Getting a clear sense of what you’d like this period of your life to look like can help you continue to budget for it. Creating a retirement plan can help you work towards clear goals and start providing you a rough idea of how much you’ll need to save.

Once you’ve got an idea of your plan, it can be helpful to start thinking about a rough retirement budget. You can explore roughly how much retirement income you'd get from government income sources and an employer pension if you have one. That can help give you a better idea of how much you need to save in your own personal investments and savings or whether you might want to continue to work part time to maintain the retirement lifestyle you’d want.

Create or evaluate your budget

With an idea of what you’re working towards, it’s time to transition back to the here and now to get a handle on your current income and expenses by creating a budget to understand your cash flow and spending habits.

If you’re in a relationship or just starting one, it can help to create a budget with your partner or to do a financial health check if you already have a budget. When reviewing what you’re spending, make sure to also look at what you could be receiving; there could be tax credits and rebates available to Canadians that may help with costs of caregiving and raising a family, for example.

Identify areas where you can cut back or earn more

Now that you have a sense of your spending habits, are there different expenses you can look at cutting back on, like streaming services, eating out for meals, etc.? The money you’re able to save by cutting back can be used for retirement savings.

Along with cutting back, you may look for ways to earn more money to help pay for necessities. Perhaps you have a hobby that could turn into a side business, or you could look to progress your career and find a higher paying job. You could even consider changing careers completely if you think it would help financially.

Start saving early

The earlier you can start saving the better. It’s common sense that saving for an extra 10 or 20 years should result in more savings in the long run, but it’s also because your money had more time to grow and compound.

Let’s look at an example of the advantage of compound interest in action. Let’s say you started saving $300 per month and earning 5% starting at age 25. By the time you turn 65, those savings could have grown to $450,000. To reach roughly the same balance of $450,000 at 65, starting at 35 you’d have to contribute $550 per month instead of $300. Starting at 45 – an astounding $800 more per month to catch up.

Maybe you can’t start with $300 per month. That’s totally fine. Start with what works for your budget and you’ll still see the advantages. Once you’ve determined a monthly amount you feel comfortable with, your advisor can help you choose investments that can help that money grow over time.

Pay yourself first

Setting up pre-authorized contributions can be an easy way to help take the thinking out of saving for retirement. You can start small with an amount and frequency that you feel comfortable with and look at increasing over time if inflation eases and finances become more manageable.  

Take full advantage of workplace savings plans

Contributing to a workplace savings or pension plan is often an overlooked part of saving for retirement. It can be an easy, structured way to save and can offer lower fees than you’d typically pay at a bank or other retail institution. Try our retirement savings calculator to see how contributing to your workplace plan can help you reach your retirement goals and see how your savings can impact your retirement income.

Perhaps more importantly, many employers offer matching programs as part of their plans. If you can afford to contribute enough to maximize your matching opportunities, it can really help boost your future retirement income.

Invest wisely

Investing is a smart way to help build your retirement savings. There’s a lot of information to process but there are a few key concepts to help you on your way, whether you’re starting with the basics or just need a bit of a refresher.

One of the keys to starting out is making sure you understand your risk tolerance. It’s a measure of your willingness and ability to handle a loss in the value of your investments due to market volatility. Try our Investment Personality Questionnaire | PDF 945kb to determine your risk tolerance, identify the type of investor you are and how it aligns with your retirement savings goals.

With a better idea of the risk, you’re comfortable with, you can start thinking about your investment strategy. It’s how you decide what to invest in, how much to invest and for how long to help you make decisions that will maximize your return on investment. 

Another concept to think about is the investment account type you want to keep your investments in. Each account has its pros and cons. If you’re focussed on saving for your retirement, you’d probably choose to put your money into a registered retirement savings plan (RRSP).

Develop an emergency fund

An emergency fund is easily accessible savings you have to cover unexpected costs. It’s a good idea to save for at least 3-6 months' worth of expenses, which might be difficult during a cost-of-living crisis. But having an emergency fund can mean you may not need to dip into your registered retirement savings plan (RRSP) which can help keep your retirement savings goals on track.

Try to tackle debt

In part due to the high cost of living, more Canadians are having to take on additional debt. At the end of 2024, total consumer debt hit a historic high of $2.5 trillion in Canada. Now, there is good and bad debt, but bad debt can make it more difficult to reach your retirement savings goals. There are strategies to help you get out of debt and keep you on track to meet your retirement savings goal.

Manage your mental health

If you’re trying to navigate a higher cost of living world, while worrying about your retirement savings, on top of everything else going on in your life, it’s natural for financial strain to impact your mental health. That can show up in many ways, including anxiety and sleep issues. But there are strategies to build resilience and help manage your mental health.

Try to treat yourself when you can

Prioritizing saving for retirement during a cost-of-living crisis can be challenging, but that doesn’t mean you have to put your life on hold. While saving for the future is important, making room in your budget for meaningful experiences can help reduce stress and keep you motivated.

When you can, try to set aside a small portion of your budget for things that bring you joy, like hobbies, social activities or travel. These don’t have to be big expenses—affordable experiences like a weekend road trip, a movie night with friends, or exploring local parks can add value to your life without taking away from your savings goals

What’s next?

  • Use our retirement income calculator to see how much you might need to afford your dream retirement, and our retirement savings calculator to see what you’ll need to get there.
  • If you’re contributing to Canada Life workplace or personal savings plan, make sure you’ve signed up for an online account to keep track of your progress.
  • Learn more about how our managed solutions can help reduce the amount of time and worry you spend on your investments.
  • Consider meeting with your advisor who can help you budget for today’s necessary expenses while still saving for your future.

The information provided is accurate to the best of our knowledge as of the date of publication, but rules and interpretations may change. This information is general in nature, and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.