It’s a familiar story: an expert in the media sounds the alarm about Canadians not saving enough for retirement. This leaves many Canadians feeling that if you didn’t start early, you’re sunk. But even during the current strength of the markets, the old adage still applies; the best time to start doing something is now.

There is plenty of room for investment growth after 40

While starting early is great advice for those in their 20’s or 30’s, if you’re closer to 50 and haven’t started saving, you probably feel a little nervous about your financial future. But the thing is, your Registered Retirement Savings Plan (RRSP) enjoys tax-free investment growth until age 71, so even if you’ve recently hit the big 5-0, you still have 21 years of tax-deferred growth for your RRSP. This means that you don’t have to pay tax on your contributions or the interest until you take it out, preferably when you’re retired and your tax rate is much lower.

When it comes to RRSPs, your contribution room has been piling up since you got your first job, so a large, lump-sum contribution is possible. Of course, a large lump sum RRSP contribution will generate a nice tax refund. Re-invest this refund for your retirement and you will be even further ahead.

Try a TFSA

If you aren’t eligible to contribute to an RRSP, or have very little contribution room, you have another option: a Tax-Free Savings Account (TFSA). Available since 2009, TFSAs have become a popular alternative to RRSPs because you don’t pay tax when you withdraw the money. With an annual contribution limit of $7,000 for 2024, your TFSA may not provide enough contribution room to fund your retirement on its own. However, it’s an important piece of your overall retirement plan and should be considered at any stage of life.

So what’s the best plan?

As you reach the late stages of your career, your earnings will likely peak and be higher than your anticipated retirement income. Given the high marginal rate you’ll have at this time, it’s advisable to invest in an RRSP in order to defer taxes. If your contribution room has been used-up, any excess savings can be invested in a TFSA.

Generally, once retired, you will be in a lower tax bracket and excess income, up to your contribution limit, can be invested at any age in your TFSA. But, if you continue to have high income and are under age 72, or have a spouse under age 72, then RRSP contributions may be preferable to reduce that income, again, as long as there is contribution room available.

Just remember, your window for retirement planning hasn’t closed and it’s never too late to plan for your financial future. If you need to catch up on your retirement savings, ATB Wealth advisors are here to help you determine your options and maximize your results.