With the rising cost of living significantly impacting Canadians’ disposable income, saving money can feel challenging. However, the right financial tools, such as a high-interest savings account (HISA) and tax-sheltered registered accounts, can help you stay on track to meet your financial goals and grow your wealth, regardless of your life stage.
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Understanding Average Savings in Canada
Canadians have been making strides in their savings efforts, both within registered and non-registered retirement savings plans (RRSPs). Based on 2019 data from Statistics Canada (the most recent information available), here’s a breakdown of average savings:
- Under age 35: $27,425 in non-pension financial assets and $9,905 in RRSPs
- Ages 35 to 44: $23,743 in non-pension financial assets and $15,993 in RRSPs
- Ages 45 to 54: $39,831 in non-pension financial assets and $41,998 in RRSPs
During the pandemic, savings across the country surged. The Bank of Canada reported an “unprecedented increase” of $5,800 per Canadian in 2020, totaling $180 billion. By the end of 2021, Canadians saved an additional $350 billion, though much of that has since been spent or used to pay down debt.
Financial Goals by Life Stage
Your financial priorities evolve as you move through different decades of life. Here’s a closer look at the key expenses you may encounter during each stage and how to plan accordingly.
Life Expenses in Your 20s
Your 20s are often marked by significant spending—on rent, student debt, travel, and car purchases. The average 20-something with a bachelor’s degree owes $30,600 in student loans upon graduation. Rent is another major cost, with the average rent for a bachelor apartment in Toronto at $1,427/month, and $1,489/month in Vancouver.
Even with these expenses, it’s important to start saving early. Setting up automatic transfers into a High-Interest Savings Account (HISA) can help you grow your money over time. For example, CIBC’s eAdvantage Savings Account offers a 5.00% interest rate for the first four months on balances up to $1,000,000, and an extra 0.25% interest when you save $200 a month.
Life Expenses in Your 30s
In your 30s, your income is likely higher, but new expenses begin to stack up, including wedding costs, childcare, and homeownership. The average wedding in Canada costs between $22,000 and $30,000, and daycare for young children can average $508 per month. Additionally, the average new mortgage payment in Canada is $2,135 per month, though this varies significantly by region.
During this time, it’s wise to continue using a HISA to help your savings grow and keep pace with inflation while working toward these goals.
Life Expenses in Your 40s
By your 40s, retirement planning becomes a priority, especially if you’re starting to max out your RRSP contributions. The average annual RRSP contribution for Canadians aged 45-54 is $4,200. Additionally, you might face expenses related to upgrading your home or funding your children’s post-secondary education. A Registered Education Savings Plan (RESP) is a great option to save for these educational costs, as it allows you to receive government grants while growing your funds tax-free.
Life Expenses in Your 50s and Beyond
As you reach your 50s, retirement planning intensifies. You may also consider helping your child purchase their first home—parents in Ontario contribute an average of $128,000 to this effort, while Vancouver parents contribute about $204,000. Additionally, some in this age group are caring for aging parents, with the average annual cost of eldercare around $6,000.
Estate planning also becomes crucial at this stage. This may involve drafting a will, setting up a trust, or purchasing life insurance to ensure your assets are distributed according to your wishes after your passing.
Maximizing Your Savings with Registered Accounts
To help meet your financial goals, consider using tax-sheltered registered accounts. These accounts allow you to grow your savings without paying taxes until you withdraw the funds, typically in retirement. The following options are available:
- RRSP: Contributions to an RRSP are tax-deductible, and the funds grow tax-sheltered until retirement. RRSPs are also useful for the Home Buyers’ Plan (HBP) and Lifelong Learning Plan (LLP) to fund a first home or education.
- TFSA: A Tax-Free Savings Account (TFSA) allows you to earn income within the account without paying taxes, and withdrawals are tax-free. The 2024 contribution limit is $7,000 per year, making it an excellent tool for growing savings.
- FHSA: The First Home Savings Account (FHSA), introduced in 2023, lets you save for your first home with both tax deductions and tax-free growth. The annual contribution limit is $8,000, with a lifetime cap of $40,000.
- HISA: A High-Interest Savings Account (HISA) offers a higher interest rate than traditional savings accounts, making it ideal for short-term goals or as a holding spot for cash before moving it into a registered account.
Saving for Every Life Stage
No matter your stage of life, it’s possible to save for the future, even in a challenging economic environment. By using a combination of high-interest savings accounts and tax-advantaged registered accounts, you can maximize your savings and work toward your financial goals. Consulting with a financial advisor is also a wise step to ensure you have the right strategies in place for your unique situation.
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