When should you start saving for retirement?

When it comes to saving for retirement, two things matter most: money and time. While the focus is often on how much you’re saving, time is actually the bigger game-changer.

The earlier you start, the longer your money has to grow and compound—and compounding is where the magic happens. It’s how your savings earn returns, and then those returns earn even more returns over time. The more years you give your investments to work, the bigger your nest egg can become, even if you’re not saving huge amounts.

How early should you start saving for retirement?

No matter your age, the best time to start saving for retirement is today. Whether you’re 18 and starting your first job or 55 and eyeing retirement, if you haven’t started yet, now is the time.

But let’s be real—if you’re fresh out of college, juggling rent, groceries, and student loans, retirement might feel like a lifetime away. Why set aside money for something that’s 40 years down the road when there are so many pressing expenses right now?

The answer: compounding interest.

It’s not just about how much you save—it’s about how long your money has to grow. Compounding interest means the money you invest earns returns, which then start earning their own returns. This snowball effect can transform even small, early contributions into a substantial nest egg over time.

The earlier you start, the more time compounding has to work its magic. Even if you can only set aside a little now, your future self will thank you.

What is compound interest?

If there’s one reason to start saving for retirement as early as possible, it’s compound interest. It’s the secret ingredient that helps your money grow exponentially over time—essentially, interest earning interest on itself.

Let’s break it down with a simple example:

Say you invest $5,000 in a safe tax-free savings account (TFSA) that earns 3% interest per year. After the first year, your money grows by $150 (3% of $5,000), bringing your total to $5,150. Not a huge difference, right? But in the second year, your interest is calculated on $1,030, not just the original $1,000—so you earn $154.50 instead.

Now, fast forward 39 years. That original $1,000 has grown to around $15,835.13. In the 40th year alone, your balance jumps by $475—more than three times the growth you saw in year one! This is the power of compounding: the longer your money stays invested, the faster it grows.

And here’s the exciting part: if you invest in stock market mutual funds or other growth-oriented investments, the returns could be even bigger. The earlier you start, the more time your money has to snowball into something substantial. Plus, this example assumes you don’t add more to the initial $5,000 over the years—as you add more to your TFSA, that’s even more interest earned.

So even if you can only save a little now, your future self will thank you for every dollar you invest today.

Why you should start saving for retirement in your 20s

As we just explained with compound interest, the earlier you start saving, the more your money can grow. Let’s give you a couple of scenarios.

25 vs. 35

Let’s say you’re 25 years old and decide to invest $5,000 in an investment account. You commit to adding just $100 a month for the next 40 years, and let’s say your investments earn an average return of 1% per month (or 12% per year). With the help of Get Smarter About Money’s calculator, we can see that by age 65, which is generally the target retirement date, you’d have $1,769,715.88 in your retirement account.

Now, let’s use the same scenario, but instead of starting at 25, you start your investment at 35. Even though it’s only 10 years difference, by 65, you’d only have $529,244.62 saved up. By waiting 10 years to start saving, you’ve missed out on $1,240,471.26.

Saving a little early vs. saving a lot later

Now, let’s use a slightly different scenario. You’re 25 years old and decide to invest $5,000 in an investment account. You commit to adding just $100 a month for the next 40 years, and let’s say your investments earn an average return of 1% per month (or 12% per year). By age 65, you’d have $1,769,715.88 in your retirement account.

But let’s say your friend decided to wait until they were 55 to start investing. They also start with $5,000 but instead, they add $2,000 a month for the next 10 years. Even though their monthly contributions are much higher than yours, they’d only have $476,579.31 saved by 65 because they missed out on 30 years of compound interest.

Retirement savings accounts in Canada

In Canada, you have two great options to help you save money for retirement—the RRSP and the TFSA. Each comes with its own benefits, and using both can help you maximize your savings over time.

RRSP (Registered Retirement Savings Plan)

An RRSP is designed for long-term retirement savings with tax benefits. When you contribute, the money is deducted from your taxable income, meaning you pay less tax now. However, when you withdraw the money in retirement, you’ll have to pay taxes on it—but ideally at a lower rate than during your working years.

Each year, you can contribute up to 18% of your previous year’s income to your RRSP, but there’s a government-set limit. If you don’t max out your contributions, don’t worry, because unused room carries forward, so you can catch up later when you’re financially able.

TFSA (Tax-Free Savings Account)

A TFSA is another great option because your investments grow tax-free. The best part? You can withdraw money anytime without paying taxes, making it a flexible way to save for retirement or any other financial goal. Just keep in mind that there’s an annual contribution limit to follow.

Just like with an RRSP, there’s an annual contribution limit. And if you don’t max it out, you can carry it forward to catch up at a later time.

The earlier you start contributing to either (or both!) of these accounts, the longer your savings have to grow and compound. Even small contributions can add up significantly over time, thanks to tax advantages and investment growth.

How to start saving money for retirement

If you’re ready to start building a secure financial future, there are plenty of simple ways to begin saving without putting too much strain on your budget.

Start today

We’ve already talked about the power of compounding, but there’s another big reason to start saving as soon as possible: the earlier you start, the less you have to save each month to reach your goals.

Think of it this way—if you start saving even just $50 a month now, you’ll be laying a strong foundation for retirement. If you wait too long, you may have to set aside much larger amounts per paycheck just to catch up.

It might feel tough to prioritize retirement savings goals when you’re already managing rent, groceries, student loans, and other expenses. But here’s the reality: there’s never a “perfect” time to start saving. Just like paying your bills, setting aside money for your future self should be a non-negotiable part of your budget. Yes, unexpected expenses—like car repairs or medical bills—will pop up. But staying consistent, even if you can’t save as much some months, will pay off in the long run.

Contribute to a workplace pension or open an RRSP

If your employer offers a workplace pension plan or a group RRSP, take full advantage! Many employers match contributions—which means free money toward your retirement. Even if you start with small contributions, anything is better than nothing. And as your salary grows or you pay off debts, bump up your contributions instead of letting lifestyle inflation eat into your savings.

If you don’t have a workplace plan, you can open a Registered Retirement Savings Plan (RRSP) on your own and start contributing at your own pace. RRSPs reduce your taxable income, meaning you pay less tax now while saving for the future. Or, if flexibility is a priority, consider a Tax-Free Savings Account (TFSA) for tax-free growth and withdrawals.

Know your risk tolerance

How comfortable are you with market ups and downs? Understanding your risk tolerance is key to making investment decisions that align with your comfort level and retirement timeline.

• If you’re young and have decades to save, you might consider a more aggressive investment approach, as you’ll have time to ride out market fluctuations. Stocks and growth-oriented funds can help maximize long-term returns but they come with more market risk. Just remember—markets go through ups and downs, so patience is key.
• If you’re closer to retirement, protecting your savings becomes more important. A conservative approach, with more bonds and stable investments, can help reduce risk and preserve your nest egg.

Whether you’re a risk-taker or prefer to play it safe, diversification is key—spreading your investments across different assets can help balance risk while keeping your money growing.

Is there a specific age to start saving for retirement in Canada?

There’s no specific age to start retirement planning in Canada. A retirement RMD calculator can also help you understand how future withdrawals may impact your long-term planning. However, if you choose to use retirement savings accounts like RRSPs or TFSAs to start your retirement fund, you must be at least 18 years old and a Canadian resident with a valid SIN to open an account.

Start saving today with Oaken Financial

So, when should you start saving for retirement? As soon as possible. The earlier you begin, the more time your money has to grow—and when it comes to investing, time in the market often matters more than the amount you invest.

That said, if you haven’t started yet, don’t stress. It’s never too late to begin. The key is to start now and make the most of the time you have. Every dollar saved today is a step toward a more secure retirement.

Thinking about retirement savings but not sure where to begin? A financial advisor at Oaken Financial can help you navigate your options. To start saving with Oaken Financial, you can book an appointment for an in-person chat, call us at 1-855-OAKEN-22 (625-3622), or if you prefer, you can open a TFSA or RSP easily in as little as five minutes.