Nest Egg Savings 101: How to Grow & Protect Your Retirement Money — EASY

06 20, 2022

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Building your nest egg is crucial to be financially secure long-term. Whether for your retirement savings, your first home purchase, or a rainy day fund, contributing to a financial nest egg provides stability and certainty for your future.

In this article, we'll break down how to fund your nest egg in Canada. We'll show you how to get started, tips to grow your savings, and how to protect what you save for years to come.

What's a Nest Egg, and Why Do You Need One in 2022?

Nest Egg
A sum of cash set aside for a long term financial goal, most often retirement.

It's a safe bet to assume that you—like most working Canadians—will eventually want to retire. Moreover, when you finally do reach that milestone, it's safe to assume that you—like most Canadians—will also want to retain purchasing power well into your sunset years.

That's where your nest egg comes in.

Although you might have a pension to cover the cost of living, it might not be enough to cover all of your expenses. A nest egg gives you an extra cushion of cash to depend on while you earn a fixed-income.

But before you start saving any money, you'll need to make a plan.

But first...

Eggs in a nest as a symbol of cash put into a retirement account to achieve long-term financial goals.

Why Do They Call it a Nest Egg?

The expression originates from 17th-century poultry farmers. Each morning, farmers would set aside a small amount of the eggs their hens laid. Rather than selling these eggs, farmers snuck them into their hens' nests the following night. This was believed to influence each hen into laying more eggs, while preventing them from ever stopping.

In other words, the farmers put aside a small amount of their earnings with the goal of achieving long-term success. This is where the modern use of the term comes from.

How Do You Build a Big Nest Egg for Your Retirement Savings?

Brace yourself for some math up ahead! In this section, we'll breakdown how to start building your nest egg.

Note: If you have a spouse, don't forget to repeat these calculations with their earnings and retirement plan so you can factor in the money you'll both need.

Person with tattoos holden gold foil nest egg investments in their hands as assets to retire on..

Step 1: How Much of a Nest Egg Will You Need?

  1. Choose the age you want to retire. For most Canadians, this is 65.
  2. Using your current annual earnings as reference, ask yourself how much money you think you'll need to live comfortably at that age.Keep in mind: Although you might not have to make mortgage payments at that point, you might have other expenses you don't presently have like medical bills. To adjust for this uncertainty, give yourself an annual income range of + or - $10,000.
  3. Next, we'll have to do a bit of math, so grab a pen! Multiply your annual income target by the amount of years between your retirement age and 100.
  4. Now take this amount and subtract the amount of money you should have in your pension by the time you retire. You're left with your nest egg's target value.NOTE: This value is not adjusted for inflation. Don't worry, we'll adjust for that later!

Man in blue shirt counting out coins for his retirement nest egg.

Step 2: How Much Will You Need to Put Away Each Paycheck?

  1. Now subtract your current age from the age you want to retire. This is how long you have to build your nest egg. Remember this amount, as we'll come back to it a few times.
  2. Divide the total value of your nest egg with the amount of years you have left to build it. This leaves you with your benchmark target for annual contributions.
  3. Now take the payment frequency of your income, and use it to find out your regular contributions.
    • Weekly: Divide your benchmark target by 52.
    • Bi-Weekly: Divide your benchmark target by 21.
    • Monthly:Divide your benchmark target by 12.

You now have the amount you'll need to put away each week for the first year.

But we're not done yet! To protect your money from inflation, increase your contributions by 2% every year (...more on inflation in the next section).

Piggy bank sniffs money as if like retirement savings accounts to reserve capital long term

Step 3: Where Should You Invest Your Retirement Account?

Overtime, money loses its value. That's why you can't just stash your savings under your mattress.

Instead, you'll want to invest your money into a savings account, or invest it into other assets that will appreciate by at least 2% over time. Why 2%? That's the target rate of inflation set by the Bank of Canada. In other words, even if annual inflation is a bit more or a bit less, over time it will likely average around 2%.

One thing to keep in mind before you invest is that all assets are different. Some have greater risks than others. Knowing your risk tolerance, depends on how long you have left to save your nest egg.

Less Than 10 Years: Low Risk

Invest in things like bonds and mutual funds; investments that will be worth a modest amount more over time, and  likely won't be worth much less down the road.

More Than 30 Years: High Risk

Your portfolio has more wiggle room when it comes to investing aggressively. Stock investments, and other assets that may go up and down in value in the short term, but are likely to grow in the long term, are more viable investment options for your retirement account.

TIP: If you have a high risk tolerance, but don't want to keep a constant eye on your investment portfolio, ask your investment broker about ETFs and Mutual Funds.

Although the two are different, they both function like their own portfolios—Both independently managed by expert investors. This means they have the potential to grow faster than bonds, while being very low maintenance on your end.

Open bank vault which is often used to secure nest egg money people save to eventually retire with.

Step 4: How Do You Protect Nest Eggs in Canada?

Despite everything you may do to try minimizing any uncertainty around your nest egg investments, sometimes life just happens.

That's why a cornerstone of every financial plan is adequate insurance coverage. To understand how much protection you'll need, ask yourself:

  • Do you have a family history of serious medical conditions that could impact your earnings down the road?
  • Are you your family's sole provider or main source of income? Would losing your income jeopardize your spouse's retirement nest egg?
  • Do you work in a dangerous career where getting hurt could affect your ability to earn an income in the future?

Now go back to the number of years before you'll need to draw from your savings. This will be the duration of coverage you'll want in order to ensure your nest egg reaches the amount needed for retirement time.

A senior couple is able to afford vacation thanks to their retirement investments. They accumulated enough wealth to sit and watch the ocean waves roll into the beach.

Step 5: How Do You to Make Sure Nest Eggs Last a Long Time?

The most vital step to keep your money saved for retirement is simple: Keep it in your retirement account!

...Then again, perhaps that's easier said than done.

One tip is to have your bank put your money into investments automatically as soon as you receive the pay from your employer. That way you never have to think about it and can ignore the account until it's time you need to lay into it.

The other great tip is to consider insurance. With the right insurance, you won't have to dip into your nest egg if you ever need the cash for a medical emergency.

Canadian seniors are happy and smiling because they managed to save a large enough nest egg to retire with success.

Conclusion: You Don't Need to be a Certified Financial Planner to Map Out Your Nest Egg.

With the right plan, and the right protection, you can make sure you'll have enough money for your entire retirement.

Key Takeaways

  • Nest eggs are sums money set aside for a future goal, usually retirement
  • You'll need to save your money as an investment in order to combat inflation
  • The risk tolerance of your investment depends on how long you have left before retirement; shorter = lower risk tolerance, longer = higher risk tolerance.
  • Get insurance coverage for the remaining time before your retirement to protect against the possibility of losing your income
  • Keep your payments steady, and your fingers away from your investments until you're ready for retirement.

Protecting Your Retirement Savings is EASY

Now that you're building your nest egg, you'll want to start looking for your best insurance protection.

Why not start your search with us? Simply fill out our easy questionnaire and get a quote from our expert team in minutes. There are no medical exams, and you are guaranteed to be approved.

Protecting your savings has never been this easy!

Get your free quote now by clicking the big button below:


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