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Bob Tillmann, Vice-President of Marketing and Business Strategy, Manulife Investments

Young people raising families should start early to save for retirement, as the obligation will fall increasingly on individuals to look after themselves when they retire, says Bob Tillmann, Vice-President of Marketing and Business Strategy, Manulife Investments.

"We still have a big challenge ahead of us to get people thinking about this as soon as they should," he says. "Our feeling is that the government isn't likely to fund larger amounts of Canada Pension Plan or other income supplements that people might like to have. And there are fewer and fewer defined benefit pension plans, the ones that allow people to worry less about saving for retirement."

While saving for retirement is far from the first priority of people buying homes and raising children, the challenges only grow larger over time, Mr. Tillmann says. "Once they start a family, the expenses don't seem to go down. Children get older and go to college or university. It just becomes harder and harder as you get older if you have not got into the habit of trying to save for yourself.

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"If people start sooner there's more ability to make a difference. No matter how much money you make, it becomes much harder as you get older, if you haven't been saving, to save anywhere close to what you'll need to come close to your pre-retirement income."

Although many people think of their house as the key to their retirement plan, people still need a place to live, and these days, fewer retirees wish to downsize. A savings plan helps people diversify and gain flexibility.

"Homes are an excellent way to create equity and personal net worth, but if you've got everything tied into the equity in your home, it starts to reduce your choices as you get closer and closer to retirement," Mr. Tillmann says. "How are you going to realize the value of that home and then create a sustainable income for yourself after you retire? Is downsizing going to be the total answer?"

One convenient way for young people to save for retirement is through a systematic withdrawal program at work – "making a monthly contribution, as small as is appropriate for you in your circumstances." The program can be as simple as a defined contribution through an employer. "And maybe there's an employer matching program. People should start to look at those programs before they're buying homes and starting to put a strain on their pay. That way, they're dealing with a number that they've already accounted for."

Registered Retirement Savings Plans or group RRSPs at work provide a tax incentive for saving, through tax-sheltered growth and tax deductibility on the initial investment. "Typically when you file your return you're going to get some tax refund back at the end of the year. You can think of making some additional payments against your mortgage." Those who start saving in an RRSP at 25 have a dramatic advantage over those who begin at, say, 35.

Mr. Tillmann does not recommend that everyone set aside a specific percentage of income as savings for retirement. "Everyone's circumstances are different."

Mutual funds offer an excellent way to diversify one's investments, he says. "They're a great way for an individual to start getting some exposure to equities, which over the longer term have provided a better return than buying instruments like GICs [Guaranteed Income Certificates]or putting the money in a savings account and simply saving your way to retirement. There's an opportunity to grow your investments through a diversified portfolio of equities and fixed income." He encourages young people to look for financial advice when investing in mutual funds.

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