As a 20-something, retirement might seem distant. However, starting now to take advantage of available programs will ensure your future self is well-prepared. 

Your retirement will likely look very different from that of previous generations. Planning for a future uniquely your own begins with understanding your earning power. This article explores how to leverage your income to grow savings over time and utilize the power of compounding to build a substantial nest egg.

Starting out on the right path

To ensure you begin on the right path, it is important to address a few common misconceptions that can lead retirement planning astray.

Myth #1: Retiring by age 55 is easily achievable.

The notion of retiring by age 55 was popularized by a 1984 marketing campaign from London Life.¹ In reality, retiring that early requires significant sacrifice. Consider this: starting a career at age 24 and retiring at 55 means working for 31 years. With life expectancies increasing toward age 90, your savings would need to last 35 years—longer than your actual working life. Achieving this requires disciplined saving and may require deferring other life goals.

With consistent discipline, however, retiring before the conventional age of 65 remains a viable goal.

Myth #2: You only need 65% to 75% of your pre-retirement earnings.

Relying on this rule of thumb may lead to a shortfall. Generally, as income rises, so does spending. Furthermore, spending patterns are rarely consistent—you may require more funds in the early years of retirement for travel and leisure, or lump sums for major expenses like home repairs or vehicle replacements.

Below, we provide essential tips on how to save for the retirement you want, even if your vision for the future is still evolving.

How to pay your (future) self first

A standard retirement strategy often centres on Registered Retirement Savings Plans (RRSPs). While Tax-Free Savings Accounts (TFSAs) are also valuable, RRSPs offer unique tax advantages.

RRSPs are a cornerstone of Canadian retirement planning. Key features include:

• Tax-advantaged growth: Contributions are tax-deductible, and investment income within the account compounds on a tax-deferred basis. Withdrawals are generally treated as taxable income.
  
  
• Strategic contributions: It is often most beneficial to contribute during high-income years to maximize tax deductions and withdraw funds during retirement when you may be in a lower tax bracket.
  
  
• Contribution limits: Room is calculated as 18% of your previous year’s earned income (up to the annual maximum), minus pension adjustments, plus any unused room from previous years.
• • x multiplying your previous year’s earned income by 18% (up to the allowable maximum for the tax year),
  • - less any pension adjustments
  • + plus any unused contribution amounts from previous years.

For example, a new graduate earning $61,000 in 2025 without an employer pension could contribute up to $10,980 in 2026. Determining the exact amount that is right for you requires further analysis.

Want to retire early? Be aggressive with your savings 

To retire by age 60, a 25-year-old should aim to save 15% of their gross income annually. If you start later, that percentage must increase. For example, starting at age 30 to retire at 60 requires saving 18.5% of your gross income every year.

Unlike other budget items, RRSP contributions should be calculated based on pre-tax income. Using our example of a graduate earning $61,000, their net income (after taxes and statutory deductions) is approximately $48,000.²

If this graduate contributes 15% ($9,150), they receive a tax deduction that reduces their taxable income to $51,850. This can result in a tax saving of roughly $2,136, meaning the actual "out-of-pocket" cost of the $9,150 contribution is only $7,014.²

Does saving 15% annually really make a difference? The math suggests so. For a graduate starting at $61,000 with modest annual raises and a 5% return, an RRSP balance could exceed $1.2 million by age 60.

Let's put $63,375/year in registered retirement income into perspective. If our grad was able to increase their income 2.57%/year from 25 to 60 their projected income at age 60 would be $148,000. On balance, $63,375 a year in Registered Retirement Income Fund (RRIF) income is only 43% of the last year's employment income. However, this won't be your only source of income at retirement. You may also qualify for government pensions such as Canada Pension Plan (CPP) and Old Age Security (OAS). 

As a new graduate, if you earn pensionable employment income or earn net self-employment income in excess of $3,500/year you will pay into the Government of Canada’s CPP program. This program was enhanced in 2019. CPP benefits have begun to grow to replace one-third of the average working earnings received after 2019 versus the one-quarter received under the old program. The maximum limit used to determine your average work earnings will also gradually increase. The current yearly maximum pensionable earnings is $74,600 for 2026 for base CPP and the limit for additional CPP (CPP2) is now $85,000. 

Unlike CPP, OAS pension amounts are not determined using your employment history. Benefits are determined based on your residency in Canada after age 18.

Maximize your employer benefits

If 15% sounds daunting, employer-sponsored programs can help. When evaluating job offers, consider the total compensation package, including health dental, and retirement benefits.

Common retirement programs include:

If you are comparing potential employers, don't just compare wages. Look at the total package. The greater the percentage of your required retirement savings that can be paid by your employer, the less personal cash flow you’ll need to meet your goals. 

If you are considering becoming a gig worker, check out Four tips to thrive as a gig worker for valuable advice.

Summary

Establishing a budget early in your career allows you to prioritize financial needs over wants. The most critical step is to "pay yourself first." The amount you need to save is determined by when you start and how long you expect your retirement to last. Starting early is the most effective way to ensure a comfortable future.

References

¹ Swystun, Jeff. “Freedom 55: Canada’s Most Memorable Ad Campaign.” Medium. 24 November 2025.''

² Calculations assume an Alberta resident individual with the following tax credits: basic personal amount, Canada employment amount, CPP and EI. 

³ “Canada Average Weekly Earnings YoY, 1992 until 2026.” Trading Economics.  

⁴ “Core functions > Inflation.” Bank of Canada.

⁵ Return based on a blended moderate risk portfolio, weighted 60% equities and 40% fixed income, returns based on forward looking returns for asset classes as recommended. FP Canada Projection Assumption Guidelines 2026.