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(Leonid Yastremskiy/Getty Images/iStockphoto)
(Leonid Yastremskiy/Getty Images/iStockphoto)

Retirement and RRSPs

It's hard to save for retirement in your 30s, but get started Add to ...

Tara Willoughby is like so many people in their 30s and 40s: career-driven, juggling financial obligations and so far away from retirement that she finds it hard to wrap her head around the concept.

“I can’t even imagine it,” she says. “I don’t think I’ll ever stop working.”

At 38, she is single and owns her own home in Pickering, Ont. She is also a committed saver, with an emergency fund in her tax-free savings account and plenty of investments in RRSPs.

Her habit of saving makes her a special case, financial experts say.

“The problem is to get 30-year-olds to save in the first place – people in that whole age group, from 25 to 45,” says Gordon Pape, the author of several books on retirement planning. “We’ve all seen the statistics – the relative small savings rate in that segment of the population.”

There’s a reason for that. The 30s and 40s are the costly years with a number of competing financial priorities – buying a house and car, not to mention the huge expense of raising a family and saving for the kids’ education. Pay for a mortgage and daycare and it may seem impossible to put money in an RRSP, too.

“If I was talking to a young couple and they had limited funds to invest, I would still say, ‘look, get started.’ It’s important,” says Eric Kirzner, a professor at the Rotman School of Business. “Make a plan and commit yourself to invest, even if it is as little as $50 or $100 a month, the old pay-yourself-first principle.”

Saving takes discipline, he says, and the earlier you start the better.

“The reason you should start saving in your 30s is so that you can ensure that you’re going to be independent, no matter what happens,” says Catherine Hurlburt, a Vancouver-based senior financial planner with Assante Financial Management Ltd.

People in their 30s and 40s have a lot of financial commitments, but it’s also a time when their incomes are rising, Ms. Hurlburt says. Her advice to clients is to save 10 per cent, but if they can’t right away, she gets them to build toward that by saving pay raises or portions of bonuses.

Saving the money is only the first step, however. How you choose to invest it is also important.

With decades to go until you retire, “you can certainly afford to be more aggressive,” says Sam Sivarajan, head of investments at Manulife Private Wealth. “Because there are 20, 30 years until retirement, you have a lot more time to weather the storms that are inevitably going to be in the market.”

Prof. Kirzner says that how you invest should depend on some key factors: your age, how long you have until retirement, your objectives, risk tolerance, investment knowledge and experience.

All need to be taken into account when deciding on asset allocation in your portfolio. Generally speaking, the further away from retirement, the higher the percentage of equities in your portfolio.

The long time-horizon for someone in their 30s is especially advantageous to someone with a high risk-tolerance who is able to stay the course, even during volatile markets, Prof. Kirzner says. “There are Rip Van Winkle-type investors, who are capable of having a portfolio and not looking at it very often.” When they wake up 30 or 40 years later, he says, they have made significant gains.

In the current low interest-rate environment, investors in their 30s and 40s should probably not put a lot of money into GICs and bonds, Mr. Pape says. Many of those returns don’t even cover inflation.

The reverse is also true: Being aggressive does not mean speculative penny stocks, he says. Instead, he suggests a portfolio of dividend-paying, blue-chip stocks, or, if you have a self-directed plan, putting your money in a balanced fund with a good track record. That kind of fund, he says, should produce a rate of return of between 6 to 8 per cent a year.

For Ms. Willoughby, though she has become a disciplined saver, she says she still has a long way to go in planning for her future and deciding how best to invest those savings.

“I know I need to save and I do save,” she says. “But my approach to retirement isn’t as methodical as the rest of my life. … I need to educate myself more.”

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