Saving for retirement on a lower-income

saving for retirement lower-incomeEVERY DOLLAR COUNTS


Let’s face it, saving for retirement is tough work. I mean, the concept is not difficult for us to wrap our heads around but finding the money, putting it away consistently and not spending it is challenging stuff.

I suspect this is the case because money is an emotional subject and it’s easy to become attached to it; we work hard for it and want to reward ourselves with it. Saving for retirement takes discipline.

When you’re not relying on paycheque to paycheque for living expenses, saving some money should be easy enough.

You also have options on where to put your money for retirement, into Registered Retirement Savings Plans (RRSPs), real estate properties, Tax-Free Savings Accounts (TFSAs), non-registered brokerage accounts and more.

High-income earners are often advised to contribute to their RRSPs in their highest-income earning years, and rightly so. This RRSP account is optimized when you contribute money when your income taxes are the highest, so monies can be withdrawn in the future when you’re in the lowest (or lower) income tax bracket, presumably in retirement. Low-income earners probably shouldn’t follow this advice, and they probably need different financial advice altogether.

Today’s post will take a look at a few money-management strategies that can apply to lower-income earners. Let’s get into it.


Strategy # 1 – Kill debt


About the only thing you can acquire without money is debt.

I’ve also read some other interesting quotes about debt – there are three kinds of people:

the have’s, the have-not’s, and those that have not paid for what they have’s.

From my personal experiences interacting with other savers and investors, I don’t know many wealthy people who have lots of debt. The reality is, wealthy people have far more assets than debt, if any debt at all. Few people become wealthy owing other people money for long-periods of time – this is just a fact folks.

Regardless of your income, my suggestion is to have a severe aversion to debt. The sooner you can kill debt, the sooner you can likely save for retirement. On a lower-income, forget RRSPs or even TFSAs for now.

My suggestion would be to focus on paying back other people as your priority. After that is done, you should have some money available to pay your future self if you want.


Strategy # 2 –Forget home moaner-ship for now


Forget owning a home. There, I said it.

Contrary to what many banks want you to believe, owning a home is damn expensive and you need to be richer than you think to afford one. Let’s take a look at some typical, additional expenses that come with home ownership above renting costs:

  • Property taxes – in my area in Ottawa, that amounts to about $4,000 per year.
  • Home maintenance – for our home we’ve installed a new roof and sealed some foundation cracks since we bought it; that was about 4 years ago. Let’s just say we’re well into the thousands of dollars here.
  • “House-sized” utility bills – in our home we pay at least $200 per month for hydro and natural gas together. That’s in the summer, it costs us a bit more in the winter months and last time I checked these prices are not going down regardless of the season.

A bigger place also requires more furniture and maybe some landscaping maintenance and costs there too. While these expenses should keep your home value up there are no payback guarantees, even for you Vancouver or Toronto. A house costs what people will pay for it.

From my personal experience and experiences in talking with other home owners, you can quickly become a home-moaner if you don’t take in account the ongoing and increasing costs to keep it.

Instead of trying to time the house market, consider not even playing the game, rent for a few years instead. On a modest income you’ll probably save money by NOT owning a house. What will you do with that “renters-dividend” as Rob Carrick calls it? Well, you can choose to follow strategy #3.


Strategy # 3 – Tax-Free Savings for Everyone


Registered Retirement Savings Plans (RRSPs) make great sense for almost every saver and long-term investor.   Tax-Free Savings Accounts (TFSAs) make sense for everyone.

You probably already know this but it’s worth repeating: a tax-free savings account is a tax-free account! This means you can use this account to put away some emergency funds, save up for a trip, save up for a purchase, or better still when it comes to retirement – consider it your retirement fund.

Money goes into this account with after-tax dollars but can be invested in securities to grow tax-free. This account is a gift to Canadians! I suggest you learn as much as you can about it and can take advantage of it if you can.

So there you have it, three money-management strategies for lower-income earners. You certainly don’t need to follow all three strategies or even attempt all three at the same time.

There are more things you can do beyond this post as well. The point of this article was to offer a perspective, some strategies how you could go about your financial business today and make things just a little bit better with the money you work so hard for.

Saving for retirement is simple but not easy, and no doubt folks with a higher-income have more opportunities to take advantage from. Money does offer choice.

This doesn’t mean saving for retirement on a lower-income is impossible and there aren’t some options available. It just may mean taking some different approaches and following a bit more discipline to get to the financial freedom you deserve.

Guest Contribution: Mark Seed is a personal finance blogger who runs My Own Advisor, a site dedicated to helping Canadians save and invest their way to financial freedom. You join the 40,000+ monthly visitors that read Mark’s posts by subscribing to his site here, join his 2,500+ Twitter followers here, and “Like” My Own Advisor on Facebook here.

Thanks for stopping by Mark! – Mr. CBB


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 Photo Credit: Freedigitalphotos.netéStuartMiles


  1. Great post Mark. I’d add a fourth strategy to this: financial knowledge. It doesn’t matter how much you save, you can’t grow your savings without financial knowledge. Reading about personal finance is a good start.

  2. Right on Aldo. From personal experience, I wish we had a much smaller mortgage. Had we bought a smaller house, with less debt, we would have had MUCH more financial flexibility than we do now. Hence, you live, you learn and you try and share what did and didn’t work for you 🙂

    Thanks for the kind comment!

  3. Great tips Mark. I don’t make that much money, but I have plans on retiring comfortably and quite possible early by doing the things you mentioned. I might buy a house someday, but only when the money is right.

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