Q – I am a 25-year-old single female, and I just started my first job. I have put together a savings program for major purchases like a home and hopefully one day a wedding and children, but I have not saved a cent for my retirement. What is the best way to go about starting to plan for my retirement when most of my resources are being used to manage my day-to-day expenses and major purchases? – Samantha H., Calgary, Alberta
A – Saving for retirement is a smart strategy, Samantha. And you’ve taken the right first step by asking the question. The fact that you are starting at 25 makes your goal that much more attainable, but you must develop a plan of action, and stick to it.
To get started, you might consider inquiring whether your employer has a company-sponsored pension plan. In many cases, larger companies offer what’s called a “Defined Contribution Pension Plan” for their employees, and will match your contribution dollar for dollar up to certain limits. Some companies also offer a “Defined Benefit Pension Plan,” where the employer contributes to a retirement fund on your behalf, which will then pay you a certain specified amount each year in retirement.
Let’s look at some numbers. If you were to save $100 a month for your retirement in a tax-deferred Defined Contribution Pension Plan for 40 years, or until you are 65, at a 5% annual return, and your employer matched your contribution, you would have $289,919 in your fund at retirement. Of course, it’s unlikely you’ll stay with the same employer for 40 years, and that 5% return may also rise or fall. Among other things, you’ll have to check whether the plan is portable or transferrable to a new employer. There are other issues to look into as well, so first off, I would seek the help of a Certified Financial Planner to help you develop an overall financial plan that meets all your objectives. – R.T.
