Am I Too Young to Save For Retirement?

Saving for retirement is something every Canadian must do, but many of us put it off far longer than we should. There are about a million reasons not to save for retirement, here are some the most common ones:

  • Low income
  • High student loan debt
  • Saving for a house
  • Starting a family

All of these situations have financial ramifications that can make carving out the money to save for retirement incredibly difficult, and in your earlier years, you might make the mistake of thinking that you are too young to save for retirement.

The truth is, you are never too young to start saving money for your golden years. In fact, the younger you start, the less you’ll have to save. Below I’m going to go through why it’s never too early to start saving for retirement.


The Magic of Compound Interest

The big reason that it’s important to start saving as early as possible is because of the magic of compound interest. Put simply, compound interest is when you earn interest on a set amount of money, and then the interest you earned, also earns interest, compounding every year.

Let’s look at a simple example:

You deposit $100 into a savings account that earns 3% interest per year. At the end of year one, you’ll earn $3 in interest, for a total balance of $103.

At the end of year two, you’ll earn 3% interest again on the $103 balance, or $3.09, for a total balance of $106.09. At the end of year two, you’ll earn another 3% interest on the $106.09 balance, or $3.18, for a total balance of $109.27. As your balance grows, so does the interest you earn, compounding every year.

Here is a table showing the interest earned over a ten year period.


Starting Balance

Interest Earned

Ending Balance










































As you can see from the table above, every year the interest you earn increases a little bit, because you are earning interest on your interest. While the difference from year to year may not seem substantial, the more the account grows, the bigger the jumps in interest will be, and they’ll get especially large in the later years. So the longer you can let your money grow, the better.

To give you an idea how much your money would grow of the course of your working years, say, 40 years, the original $100 would be worth $326.20 in 40 years.

Save a Little Today, Or a Lot Later

So we know that the earlier you start saving, the better your retirement account will look, but what about if you have a target end goal in mind?

For example, I’d like to retire with a million dollars in my retirement account. I feel that one million dollars would allow me to live a life comparable to what I’m living now, for my entire retirement.

I know that starting to save for retirement earlier is better, but just how much better? Here’s an example to show you.

Let’s assume I start saving for retirement at age 25 and I want to retire at 65. That is 40 years to save for retirement. If I save $6,000 per year (that’s $500 per month) starting at age 25 and invest that money in mutual funds with an average rate of return of 6%, I’ll end up with $1,046,000 at age 65. Perfect!

But what if I don’t start saving until I’m 35? Well, my compound interest will have much less time to do its thing, and I’ll need to save more to compensate. Here’s how much more:

I’ll need to save $12,000 per year (that’s $1,000 per month) to retire at age 65 with $1,076,000 in my bank account. By delaying by just ten years, I’ll need to double my total retirement contributions to make up for the work that compound interest does automatically.

I don’t know about you, but I’d rather keep that extra $6,000 per year in my pocket and start saving early, even if it’s not easy on my budget.

Don’t Let Fear Stop You

Many millennials put off investing their money for years because they don’t trust the stock market, they aren’t sure where to put their money, or they don’t know if it’s a good time to invest. While there are certainly terrible places to invest your money, with a little research, it’s easy to understand the basics of how the stock market works and where to put your money. I highly recommend reading the following books if you don’t know where to start:

Stop Over-Thinking Your Money by Preet Banerjee
Wealthing Like Rabbits by Robert Brown
The Millionaire Teacher by Andrew Hallam

These are some of my favourite authors, and they take the mystery out of handling your money. These books should be available at your local library branch, so you don’t even need to buy them to benefit from their wisdom.

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