Is it too late to save for retirement? How to invest in your 40s, 50s and 60s

Between the high cost of living and a challenging economy, many Canadians feel like they’re behind when it comes to saving for retirement. Even the most diligent savers have found their budgets squeezed in recent years by rising inflation and interest rate hikes. This raises questions about how to save, and what to do when faced with different investment options.

It can help to know you’re not alone. Half of Canadians said their most important investing goal is to retire comfortably, according to the RBC 2024 Financial Independence Poll. However, in the same poll, three in four respondents said they worry about how to balance saving for immediate priorities vs. saving for retirement. The struggle is real. The result is that Canada’s median retirement age has been steadily rising over the last 20 years. One in two Canadians who are still working after their 60^th birthday are doing so out of necessity, according to a 2022 Labour Force Survey.

To get where you want to be, on a timeframe that works for you, it can be useful to break the steps down and draw a roadmap. Here is a four-part plan you can use to get more serious about saving for retirement, whether you’re in your 40s, 50s or 60s.

1. Imagine your wants and needs in retirement

Do you picture yourself at a quiet cabin on a northern lake? Or living a snowbird life, split between golf and grandkids? Retirement plans look different for everyone. Spend some time assessing what you want from your golden years. Some people downsize while others stay in their current home. Some people continue to work on a part-time or contract basis, while others go all-in on travel or other hobbies. To get the ball rolling, Test Your Retirement Knowledge and start to give some thought to important elements of this phase of your life, like the living arrangements and social life you want to have. Will you need a car? How about housekeeping services? Even though it’s difficult and uncomfortable, you should also consider what sort of help you might have or need to hire if you face health challenges as you age.

Once you understand what retirement looks like for you, here are some helpful calculators and tools you can use to get started thinking about an investment strategy. For example, maybe you’re wondering whether to invest in a Tax-Free Savings Account (TFSA) at this stage or a Registered Retirement Savings Plan (RRSP). If you have RRSP contribution room left, investing this way can lower your tax bracket; but if you’re working part-time or have a lower income, TFSA contributions might be right for you. 

2. Take stock of where you’re at today

As a picture of your retirement starts to form in your mind, you may find this helps motivate you to sit down and assess your day-to-day spending. Consider tracking your income and expenses over the course of a month, to see where your money is going and whether you have room in your budget to start (or increase) making contributions towards this goal.

This may be a good time to check in with your advisor, especially if you have other goals and priorities to juggle—for example, if you have kids and are contributing to their post-secondary education, you might factor in Registered Education Savings Plan (RESP) contributions.

An advisor can also help you understand the specifics of any savings you already have. What is your actual net worth? This list could include a pension from a previous company, any investments in Canada or abroad and the equity in your home.

If you’re carrying debt, you should take steps to reduce it, both to free up mental space and increase your financial security. It’s particularly important to work toward paying down any debt the closer you are to retirement — factor in any changes in interest rates over time, and debt payments, which can be an unpredictable expense that may balloon and constrain your retirement finances.

Generally, a good place to start is by paying off any high-interest debts, like credit card debt. You could consolidate high interest debt into lower-interest debt, which could help lower your interest costs and payments. Once accomplished, this may free up more money that creates cash flow and could be used for investments linked to retirement.

It can also be encouraging to see how much you’re entitled to receive from the Canada Pension Plan (CPP) and Old Age Security (OAS) at retirement. The amount will depend on specifics like how long you’ve lived in Canada, how long you’ve worked and your average earnings.

3. Understand your attitude toward investing

Now that you’re committed to starting or growing your retirement fund, it’s important to understand your own risk tolerance and risk capacity. Your timeline is also an important factor to consider. If you’re in your 40s and your target retirement date is still more than 15 years away, you have a much longer time to invest than someone in their 60s who is hoping to slow down in the next five years or so.

If you have a longer time to invest: If your retirement is still 15 years away, you might consider higher-risk investments. This is because you’ll have more time to make up for any potential losses along the way. Over time, markets generally recover from losses, which can offer peace of mind if there are bumps along the way.

If you have a shorter time to invest: If your retirement is less than 15 years away, you may decide to opt for stability: lower-risk investment options. Once you get to a point where you plan to start using your savings soon, you may not be able to afford to see any significant drops in your investments—even if your investment style has been more high-risk until now.

No matter which category you fall into, speaking to an advisor can help determine the right investment mix for you and your goals. For example, even if you technically have a longer time horizon, you may not be able to tolerate the ups and downs of a higher-risk investment. Instead, you could opt for a lower-risk option that’s a better match for you personally.

4. Be intentional

If you feel like you’ve fallen behind on saving for retirement, you may be feeling stressed about playing catch-up. An advisor can offer financial recommendations based on your investment needs. There are ways to help get on track once you’ve decided this is the time to make retirement a priority investment.

Many people find pre-authorized contributions are a helpful way for them to be consistent and disciplined about saving for retirement. If you decide on a set monthly amount, and automate the process, you’ll eliminate the chance of forgetting or spending the money elsewhere as a spontaneous purchase. Another potential upside of contributing a fixed amount to your RRSP is that you’ll be purchasing investments at different price points. This is a potentially more strategic way of buying into the market—it means you’re averaging costs over time and not investing a large sum at a time when prices happen to be high, which would lower your returns.

When most people think of their retirement savings, the first thing that comes to mind is a Registered Retirement Savings Plan—after all, the purpose is right there in the name. Certainly, as part of your strategy, you can max out any RRSP contribution room you have, to the best of your ability. As a bonus, those contributions may help to potentially lower your income tax bill. If you are married, you can also make strategic decisions to invest in a Spousal RRSP and receive a tax deduction.

But don’t forget there are other ways to save. You can grow your money tax-free in a TFSA, for any savings goal including retirement. If you’re unsure how much room you have in your TFSA, here is a step-by-step guide to figure it out. In 2024, the TFSA contribution limit is $7,000.

Finally, if your employer offers a workplace retirement savings program, this can be a great way to save money with your employer’s support. Employer sponsored savings plans are a tax efficient way of maximizing your savings through payroll deductions. These programs can help to make the most out of your investments since payroll contributions are deducted at source, reducing your taxable income, which can potentially lead to lower taxes. Once you’ve enrolled and earmarked part of your salary for retirement, you should aim to contribute at least enough to capitalize on any employer matching contribution offer. This way, you aren’t leaving money on the table.

The bottom line

After a difficult few years, Canadians are enjoying a moment of optimism in the wake of the Bank of Canada’s interest rate cut—the first G7 nation to do so. It could be the start of a new chapter.

Even if you’re starting late on saving for retirement, at least you’re starting now. You don’t have to feel like you’re behind forever.

Taking concrete steps in your 40s, 50s and 60s can help you regain a sense of control over this next phase of your life. Together with a professional advisor, you can build a solid retirement plan that you’re motivated to save for in the coming years.

Share This Article