3 scenarios with which you can boost your retirement (without cutting into your budget)

3 minutes

Planning for retirement involves more than just setting aside the same amount, month after month. It's about seizing every opportunity available to you to boost your savings, especially the closer you get to this important milestone. And if it doesn't upset your budget, it can be the cherry on top!

Too good to be true?

Some events are true gifts from the heavens: they help you grow your retirement savings… without restricting yourself. This includes a salary increase, a debt finally repaid, or the famous “tax refund”.

Hard to believe? And yet, it’s possible!

You just have to adjust your strategy. When you take action at the right time, you maximize the effect of compound interest and get closer to your retirement goals sooner.

One thing’s for sure, it’s never too late (even at 50) to put money aside.

How much should you save for retirement?

To find out, start by determining what your income will be:

Then calculate your future expenses and prepare a budget.

Your advisor can help you in this area. Don’t have one? Contact one of ours. In the meantime, use a calculator (This hyperlink will open in a new tab). It also helps you decide when you'll hang up your skates. But beware, there’s no substitute for planning with a pro.

Scenario No. 1: Salary increase or bonus

When your manager gives you a raise or bonus, you have every reason to celebrate… especially with the inflation of recent years. It erodes the value of every dollar. So, when your income increases, it's a great opportunity to save without changing much in your lifestyle.

Build in an annual increase in your contributions, for example +2% after each salary increase. You'll hardly notice the difference, but your savings definitely will.

Use this opportunity to boost your RRSP or TFSA contributions without making an impact on your current budget. It's one of the easiest ways to effortlessly grow your savings.

Sound complicated? Just share your plan with your advisor, and you're all set!

Scenario No. 2: Debt or loan repaid

Are you only a few months away from paying off your mortgage? That's one less burden for your budget to bear – and a great opportunity to turn that amount into an investment for your future.

Put the money you would spend on paying your debt toward your retirement savings. Even better, rename the automatic payment “Retirement” in your online banking account. Something to keep you motivated for a long time!

Pay off your debts or invest?

First, review the interest rate of your debts and those of your investments.

If the interest rate on your debt is higher than the return you could earn by investing, it’s more beneficial to first pay down the debt.

Conversely, if the interest rate is low and your investment has a higher return potential (e.g. in an RRSP), investing is a winning strategy.

Scenario No. 3: Tax refund or budget surplus

How to use your tax refund to build wealth? It’s easy! Just reinvest it.

Even the smallest amount contributes to the snowball effect of compound interest. It's far from being a mere drop in the ocean.

By contributing to your RRSP, you reduce your taxable income. And every dollar you add maximizes your tax reduction.

But your RRSP does much more for you than reduce your taxable income. It also impacts the effective marginal tax rate (EMTR) (This hyperlink will open in a new tab). EMTR helps explain the tax burden on each dollar of income. When your income decreases, your taxes decrease as well, while some of your benefits may increase. Contributing to your RRSP may therefore represent a greater benefit than expected.

Why not a 50-50?

With the 50-50 rule, you can treat yourself as you save: 

  • Keep half for your enjoyment. You've truly earned it.
  • Invest the other half for your retirement. Your future self will thank you.

It's what we call splitting the difference… intelligently.

Take action!

When it comes to saving, time is your greatest ally. The sooner you act, the more compound interest works for you and amplifies every dollar you invest. This window won't stay open forever, so take advantage of it now.