Maxime* lives alone in an apartment. For the past 4 years, he has been working full-time for a company that doesn't offer a pension plan. Like many young adults, he doesn't have a financial advisor. He prefers to educate himself and get information from friends and family.
He contributes to a TFSA when his budget allows, but not on a regular basis. He doesn't have an RRSP. He's often been told that RRSPs aren't a priority early on in your career.
Maxime wonders whether he should start saving more seriously for the long term, including for retirement. He would also like to buy a condo eventually. With all the financial pressure and sometimes conflicting advice out there, Maxime isn't sure where to start to get a better handle on his money.
Financial situation
- Salary: $55,000 per year
- Savings: $8,000 in a TFSA
- Pension plan: none
Our advice
Should you start planning for retirement when you're 25?
Yes, if you can! The earlier you start saving, the more time will work to your advantage. Retirement may seem a long way off, but it's a great place to start planning your finances. It's not about having a perfect plan, it's about establishing a direction.
"Someone who likes to do things for themself, like Maxime, can gently start structuring their finances using a simple digital tool like My Game Plan."
– Sébastien Lafontaine, FlexiFonds mutual fund advisor and financial planner
With My Game Plan, Maxime gets an overview of his financial situation in just a few minutes. Not just to plan his retirement, but to answer very specific questions:
- Are my savings habits sufficient?
- Am I able to start thinking about buying a property?
- What can I do to improve my situation?
Key information for a realistic plan
To get started, Maxime needs to provide some key information so that the tool can make tailored recommendations.
- His long-term goal, in this case, retirement. You can set an approximate retirement age and use the tool's default data. The important thing is to put retirement in the plan to start getting an idea.
- His annual salary, specifying whether it is indexed to inflation. A salary increase of 2% or 3% per year can have a significant long-term effect.
- His savings and investor profile. His TFSA with FlexiFonds products is already entered in the tool. If he adds other accounts, specifying his profile helps project a realistic return.
- His preferences. Is he ready to gradually increase his savings? Invest his tax refund? Make short-term compromises to achieve his goals? By answering honestly, he'll get a plan that's tailored to his reality.
Strategies
Once the information has been entered, My Game Plan generates personalized recommendations. This will help Maxime think through his options. Here are some strategies that could work for him.
01 Start saving in an RRSP
The main recommendation is to set up regular savings in an RRSP, about 10% of his gross income, which is close to $425 a month in his case. It's an ambitious but achievable goal.
"Ten percent is an excellent base. If that's not possible right away, you can start smaller. The important thing is consistency," says Sébastien Lafontaine. This is all the more important because Maxime's work doesn't offer a pension plan, so he'll have to rely on his savings in retirement.
Tip
We recommend setting up automatic bank withdrawals or payroll deductions whenever possible. If you wait until the end of the month to save, there's often nothing left. By saving with every paycheque, you'll barely notice the effort.
Why save in an RRSP, even at age 25? So that tax credits can work in his favour.
By contributing to an RRSP, Maxime reduces his taxable income. This could mean a tax refund and an increase in certain government benefits, like the CGEB (Canada Groceries and Essentials Benefit) and the solidarity tax credit. And he could get 30% more in tax credits if he contributes to an RRSP+ by subscribing to Fonds de solidarité FTQ shares.[1]
The result is a very attractive net return. "It's not just a tax refund. It's a domino effect. Every dollar saved can trigger a number of tax benefits," the advisor explains.
02 Set aside his tax refund
Tax refunds are often considered "extra" money. By investing his, Maxime accumulates savings faster without changing his monthly budget.
"Some people prefer to reduce taxes at source, while others prefer to get a larger refund later. The important thing is that the money is actually saved," says Sébastien Lafontaine.
If Maxime plans to use this money for a future downpayment, he can reinvest it in his RRSP (with a view to using the HBP or Home Buyers' Plan) or put it in an FHSA.
03 To go a little further: Add a home purchase to the plan
Is Maxime on track to save the down payment he'll need for his first condo? By adding a property purchase goal to My Game Plan, he can track his progress and get recommendations on how to save the amount he needs.
Tip
The Cost field of the property purchase goal should include the amount required for a down payment and purchase-related costs like notary fees, moving costs, and transfer duties (welcome tax).
The tool allows you to test different scenarios: a down payment of 5%, 10%, or 20%; buying in 3 or 5 years; etc. This helps Maxime realize that he can become a homeowner, as long as he takes things step by step.
Slowly laying the right foundations
When you're young, making smart financial moves doesn't mean that you have to anticipate and optimize everything. You try. You learn. You adjust. The important thing is to get started! Starting early, no matter how small, is often one of the most powerful strategies.
Ready to take the first step?
Whether you're just starting out in your career, thinking about buying your first home, or simply looking to structure your approach to your finances, My Game Plan can put your mind at ease. All it takes is a few minutes to bring clarity to your goals and pinpoint concrete strategies to achieve them.
