Everyone wants to feel the peace of mind that comes from being financially stable and one of the keys to financial success is building your savings. Saving can be challenging, even at the best of times, and it can take a long time to even build your savings to the point that feels comfortable in the first place.
When young people start out, they tend to earn less which makes it incredibly hard to save quickly. Gradually, as people age and earn more, they find themselves able to save more in proportion. However, many people still feel that they haven't saved as much as they should have, or haven’t saved as much as their peers. Wouldn't we all like to save more or to have started saving sooner? Because of this, it might be helpful to know how your savings compare to others who are similar to yourself. This can help you see if you are on the right track or find out if you need to reevaluate your saving strategies.
This can be useful to help you set your own goals, but it's also important not to compare yourself to others. Everyone saves at their own rate and has their own goals and needs. You may feel behind compared to others, but there are always ways you can work to save more. Let’s take a look at what the average savings amount is for Canadians but again, remember not to compare yourself to others or be harsh on yourself.
According to a Statistics Canada report, in 2018, the average household saved just $852. That may seem surprisingly low, but this is due to the effects of taking such a broad average.
Across the range of Canadian residents, there are many different earning levels. For example, those who did not save but instead went into debt are included in the average.
Statistics Canada indicates that among the lowest income quintile (bottom 20% of earners), the average household had a net dissavings of almost $28,000, meaning they spent more than they earned. Among the top 20%, the average savings were much higher at over $40,000 In a similar report from 2021, Statistics Canada found an increase in average net savings across all but the highest earners in Canada during the pandemic. This results from a few factors such as increased income, slowed spending, and low-interest rates, making debts more serviceable.
Looking at a pure average of how much Canadians save can be challenging to compare oneself to because people at different points in their lives may have very different incomes and spending and savings habits. Luckily, Statistics Canada also tracks data for the average debts and assets of different age groups. Keep in mind though, that rather than the amount you need to have saved by a certain age, this data only tells us how much Canadians of each age group have saved on average. The most recent available information on these trends is from 2019.
Statistics Canada tracks data in two categories: those who are part of an economic family and those who are not. An economic family is a group of two or more people who live together and are related by blood, marriage, common-law partnerships, adoption, or a foster relationship. Those who are not included in this segment would generally be single people who do not have children.
In general, those in economic families report higher amounts of savings. This could be explained in a few ways. For one, those who live together are able to gain financial benefits from pooling resources and sharing financial burdens. On the other hand, it may also be true that those who are less financially well off might be less likely to start a family due to financial concerns. It’s also worth noting that though the general savings are higher for those in economic families, they also report significantly higher debts across the board, meaning their higher amount of money must go towards servicing more debt than a single person, making the difference less significant than it may initially appear.
For Canadians under 35 who are part of an economic family, the average person had $77,836 in financial assets (bank accounts, investments, etc.) and $115,399 in pension assets (registered retirement savings plan and similar accounts, employer-sponsored pension plans, etc.). For those who are single or not part of an economic family, they had $27,425 in financial assets and $25,263 in pension assets. As you look at statistics for higher age groups, there is a trend of increasing savings and greater average net worth as you get older, until you get to the retirement ages, at which point the average savings start to go down, likely as people retire and begin to dip into their retirement savings account and other assets.
For ages 35 to 44, the average amount of retirement savings was $360,089 for those who are part of an economic family and $39,682 for those who are not. For financial assets, the averages were $107,274 and $23,743 for the two groups respectively.
From 45 to 54 years of age, the average economic family had a total retirement savings of $742,008 and an average financial asset value of $250,175. For people not in an economic family, the corresponding savings were $130,685 and $39,831.
From 55 to 64 years old, Canadians had the highest amount of assets saved. Economic families of this age had $1,087,587 in pension savings and $310,438 in financial assets. For those not in an economic family, the average amount of savings was $260,662 for retirement savings and $70,049 in financial assets.
Beyond the age of 65, Canadians who are part of an economic family see a decrease in savings, while those who are single continue to see their savings increase. The data does not offer a clear interpretation of this discrepancy, but it could be due to single older people with lower savings choosing to continue to work or as a result of selling non-financial assets such as real estate to fund retirement.
As I mentioned before, averages include a wide range of people with different earning and spending habits so it can be hard to compare them to your own circumstances. If you are trying to determine how much you should save, there is a general rule of thumb to help give you an idea of what you should aim for.
The general rule states that you should try to have at least one year of your annual salary saved by the age of thirty. From there, you should aim to increase to four years of annual income saved by 45, six years by 50, and up to 10 years of your income saved by retirement age to 67.
This guideline assumes that you are saving at least 10% or higher of your gross income from the time you enter the job market and that you take advantage of an investment portfolio in financial markets to some extent.
The question of how much you need to save is going to depend entirely on what you are saving for and how soon you need the money. What you are saving for, be it a down payment, a new car, or retirement savings, will determine the final value you need and how soon you need it will determine how much you should be saving at a time and your general saving strategy.
In addition, the conventional advice is to have at least a decent amount of savings on hand that is not dedicated to any specific purpose. This serves as an emergency fund for any number of financial obligations that can pop up unexpectedly. Some recommend having at least six months' expenses or more saved in an emergency fund. This money should also not be invested in any risky or non-liquid assets so you can use it as soon as you need it.
Let's look at some of the things you may be saving for in more detail:
saving for a down payment, you should first think about what you want in a home. Are you okay with a less expensive condo, or would you rather have a detached home? Do you need a certain size to accommodate your family? Once you have a general home in mind, you should look at areas where you want to buy and what the prices are like.
Depending on how expensive homes are in that area, the simplest way to know how much to save is to take a direct percentage of the home's value. If you are looking at homes that are $700,000 and you want to put 20% down, you will need to save about $140,000. However, this is not a perfect measurement.
For one, there are more costs involved with buying a home than just the down payment. On closing costs alone you can expect to spend another 1%-4% of the home's value. This can put a significant dent in your down payment savings if not accounted for.
You should also consider that homes change in value every year. If you plan on buying next week, this won't be an issue, but if you want to buy in 10 years, you may find that once you have saved the initial sum you planned on, it won't be enough for what you wanted anymore. You can try to look at the way that prices have been increasing and decreasing in the area you want to buy and use that to project how much you need.
All things considered, you should aim to save a bit more than you may initially think in order to cover any changes in the market or unexpected expenses. The exact value will depend a lot on what you plan on buying.
The other big thing that Canadians save for is retirement. We all dream of not working one day and having some time to enjoy our golden years, however, this can't be done for free. The thing is, with retirement so far away, it can be hard to see it as a reality and start saving early. Even if you do begin early, the question then is just how much you need to save.
There is a general rule that you should expect to require around 70% of your annual salary for your retirement income. So, if you make $100,000 a year, you would need about $70,000 in retirement. If you plan on being retired for 25 years, that comes out to $1.75 million. It can cost a lot to support yourself for many years, so it's clear why smart saving is important! This assumes that your expenses go down in retirement due to factors like no longer having dependents, having your mortgage paid off, reduced commuting expenses, and more. You may also take into account if you plan on working part-time while in retirement.
How much you save will also depend on how much you make. If you make $100k, the 70% figure may be fine. If you make more, you may need closer to only 50% of your salary per year of retirement. Those who earn less may need an even higher percentage.
Again, like saving for a home, it can be hard to pinpoint exactly how much you will need so it's best to assume you will need more than you think to make up for unexpected costs. Consider using an online retirement savings calculator or talking to a financial advisor as you reach retirement age to figure out more specific numbers for your circumstances.
Luckily, most other savings do not need to be as large for retirement or home purchase and may not fluctuate in price as greatly. If you are saving for something other than mentioned here, you can still follow the same general idea. To save effectively, you should always aim to have a firm number in mind of how much you need and how soon you will need it. From there, it’s as easy as working backwards to determine how to reach your goal.
All Canadians dream of retiring or owning their own home, but too few are making genuine steps towards saving enough to make it viable. Some simply don't make enough to save a significant amount which is completely understandable. But, even some people with high earnings may find themselves lacking when it comes to savings if they don’t look ahead.
There are two crucial steps that you should observe when planning for any major savings. The first, as mentioned before, is to have a clear idea and goal for your savings both in amount and how long you have to save. The other is to begin saving as early and as often as possible.
There are numerous benefits to saving early. One of the biggest is that you have the option to invest your money and take advantage of interest growth for many years. In addition, the longer your investment plan is, the more risk you can tolerate, allowing you to actually opt for higher return investments and see your money grow even more. It also gives you an opportunity to make the most of options like your RRSP or tax-free savings account. Starting early also simply means that you won't feel behind or feel stuck playing catch up. You can enjoy your money now while putting smaller amounts away gradually rather than trying to rapidly reduce your expenses after years of spending in order to suddenly pad out your savings accounts.
No matter what you are saving for, it's often hard to think of your future self and put money away for later. However, for those who do, it proves well worth it down the line. No matter how old you are or how much money you have saved, it is never too late to start. By understanding how much you need to save and how quickly you can do so, anyone can make an effective savings plan and begin working towards realizing financial success.
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