I mentioned in my most recent net worth update that I finally started to save for retirement. It wasn’t much, but that first $250 felt great as a start to what I hope while be a nice fat retirement nest egg.
I don’t know why, but I’ve always been extremely excited to get started with saving. Maybe it’s because I’m just naturally a pessimistic and anxious person, and I feel like the bottom could drop out of my life at any moment. So, I suppose it’s only natural that the idea of having thousands and thousands of dollars in the bank would be a very calming and assuring concept. Of course, before I can get to thousands and thousands, I have to start with my first dollar.
Where Do I Put My Savings?
When it comes to savings, I have the same two choices as all Canadians: a Tax Free Savings Account (TFSA), and a Registered Retirement Savings Plan (RRSP). These two savings vehicles are like the pots that you plant the seeds for your retirement savings in, you can put cash, stocks, etc in them, and the two options have their own unique benefits. If you want a great post discussing which one is right for you, check out this TFSA vs. RRSP debate on Young and Thrifty. I’m no expert, so I’m not going to tell you what to choose. I will tell you, however, what I chose for myself.
From what I’ve read on the subject, if you have a lower income, maxing out your TFSA first is the smart move. Since I keep my emergency fund cash in a TFSA, and I plan on seriously bulking up my emergency fund this year, I also opened an RRSP to house my retirement savings.
How Much Should I Save?
Answer: As much as possible.
In my case, as much as possible is about 15% of my net income every month. I’m saving another 15% towards my emergency fund, and I’m comfortable with this savings rate. This is one of the reasons I wanted to start saving as early as possible: Getting started with saving sooner rather than later means I can get away with saving less per month than say, a 35-year-old, because I have a lot more time to build up my retirement accounts and let compound interest work its magic.
What Do I Invest In?
While the idea of having all of my savings immediately accessible in the form of cash is great for the worry wort side of me, I know that logically, I want my money to grow, and in order to do that, I need to invest it.
I’m going to keep my emergency fund in cash because I always want access to that. For my retirement money, however, I want to invest.
The problem with that plan is: I’m a newbie saver. I have zero experience with investing. Zilch, nada, none. Because of this, I’m in no way comfortable enough with my knowledge to open a trading account and start investing in stocks right off the bat. Instead, I did what I always do when I want to learn more about something: I read as much as humanly possible on the subject.
I started out by reading Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, which I considered to be a great introduction to the topic of investing for retirement. Then I queried my more experienced PF blogger friends on twitter for recommendations. I was directed to the Canadian Couch Potato website where I feasted on straightforward and easy to understand information on getting started with index investing as a hands-off approach to saving for retirement. The website is run by Dan Bortolotti, who I saw speak at the Canadian Personal Finance Conference in October. The dude seemed pretty cool, trustworthy, and above all: knowledgeable on the subject of DIY investing for no-nothing newbs like me.
After combing through that website and also reading a few Rob Carrick (another idol of mine) articles, I finally settled on the ING Streetwise mutual funds as a good first step in my retirement savings journey. I feel comfortable with ING already, and I could start investing with almost no start up cash. That last point is pretty important to me since I’m starting with so little, I didn’t want to have to accumulate a thousand bucks before I could get my feet wet.
Starting to save for retirement is a really exciting prospect for me. It feels like a super grown up thing to do and most of all it’ll help me sleep at night.
Have you started saving for retirement yet? I want to know!