Pattie Lovett-Reid: What millennials need to know about retirement savings

Start saving early and save often.

I know you have already heard this before but I do think it is worth repeating, and here's why: it is the best piece of financial advice I have ever received.

The good news? It isn't just sound advice, it works. However, knowing what I know today, I would add a twist. Saving for retirement is key, but it is just one component of the much bigger retirement picture. What was missing for me back then was the lifestyle element. In other words, the lifestyle I hoped to enjoy in retirement. What I have come to realize is the retirement lifestyle you're dreaming about today can be a powerful incentive that drives your retirement savings for the future.

Now to be fair, I don't expect anyone in their 20s or 30s to get excited about saving for retirement nor do I want to you to compromise your life today to a point of financial pain for retirement down the road. But what I do hope is that you think about what you want to be enjoying 40 years down the road. Just think about it. Do you hope to travel, volunteer, or turn a passion into an income-producing endeavour? My point is, even if it's just once a year during RRSP season, you stop to rethink your spending strategies and ask yourself if saving a little bit now would make a huge difference to your lifestyle years in the future?

Maybe if you knew the numbers it would cause you to do things differently.

As we near the end of the 2021 taxation year and the March 1st deadline for RRSP contributions, the decision of whether and how much to save is fast approaching.

It's a simple back-of-the-envelope calculation that will be different for every household, depending on differences in sources of income, for example. However, for illustrative purposes, if you lived in Ontario and were making $75,000 dollars a year, paid $22,200 in taxes, and made a $7,500 RRSP contribution, according to Turbo Tax you would get an estimated $9,783 refund.

Rather than blowing that cash now, you can take advantage of time and how it can make your money work for you.

You can take advantage of the power of compounding interest, if you take that money and invest it in the market while benefiting from deferred growth in your retirement savings plan. Let's use the assumption you are 30, with a pre-tax income of $75,000 a year, and continued with your annual contributions of $7,500 until age 65. Assume you live until age 95, and have an annual rate of return of 5.77% while you are working and 2% in retirement, the power of time and compounding results in a retirement nest egg of $557,753 that would translate into annual pre-tax income of $24,903.

If you do nothing, you get nothing and are no further ahead – financially speaking. So, even if saving $7,500 would be a stretch, play with the numbers, set a goal and realize no one will care more about your retirement lifestyle than you.

Something to keep in mind: you might think you will never retire but it might not be your decision. Your employer, your health, the economy could dictate otherwise.

The bottom line for any millennials who feel your golden years are right now: recognize the golden opportunity for your future if you decide to embrace it.