In a 2019 report from the Retirement and Savings Institute at HEC Montreal, Canadians scored an average of 36.5% when quizzed on their understanding of how retirement programs and concepts work in Canada. This factored in topics like employer plans, government pension plans, government savings plans, and other general financial knowledge.
Here's the thing: there are many investment options, in terms of specific products you can buy or invest in, and different account types. Generally speaking, here's how you should prioritize your retirement savings:
- Employer-matched retirement plans: If your work offers to match contributions to a retirement plan, start here. There may be a limit to their contributions, but that's an immediate return on your investment. Maximize this plan first, then move onto step two.
- Use a TFSA or RRSP: with a Registered Retirement Savings Plan (RRSP), your contributions you make are tax-deductible, so you pay less taxes today when you make deposits. However, you will pay tax on that money (and any interest or gains) when you withdraw it in retirement.
In a Tax-Free Savings Account, your deposits aren't tax-deductible, but unlike the RRSP, any interest or gains are completely tax-free. Some people use their TFSA for short or medium-term savings goals, but it's also a great tool for long-term retirement saving.
Unfortunately, both RRSPs and TFSAs are underutilized with many people not maximizing their contribution limits. This is generally not because they don’t want to, but simply because they don’t have the money left at the end of the month to contribute. Try setting up an automatic RRSP or TFSA contributions on the same day you’re paid allows you to pay yourself first and save for retirement without really thinking about it.