Retirement planning in your 20s: small habits, long runway

Why the early years carry so much weight

Growth in a savings account builds on itself: returns earn returns, year after year. The longer money stays invested, the more of the final balance comes from growth rather than from the dollars you put in. In your 20s, that runway can be 35 to 40 years.

That doesn't mean you need large amounts. It means the first contributions do a lot of quiet work. The rest of this page uses a hypothetical example to show what that can look like, with every number calculated in today's dollars so it is easier to compare with your own budget.

It also means the plan doesn't need to be precise yet. At 25, a rough target and a regular contribution are enough to begin; details like CPP timing and withdrawal order belong to later decades.

TFSA and RRSP: the two accounts you'll hear about first

A Tax-Free Savings Account (TFSA) gives no deduction when you contribute, but growth and withdrawals are tax-free, and withdrawals don't count as income. The annual limit for 2026 is $7,000. Room starts building in the year you turn 18 (if you are a Canadian resident with a valid SIN), so someone who turned 18 in 2019 has $51,500 of cumulative room in 2026 if they have never contributed.

A Registered Retirement Savings Plan (RRSP) works the other way around: contributions are deductible now, and withdrawals are taxed later. Your new room each year is 18% of your previous year's earned income, up to the annual dollar limit ($33,810 for 2026), minus any pension adjustment. Someone who earned $48,000 in 2025 would add 18% of that, or $8,640, for 2026.

Which account comes first depends largely on your tax rate today compared with what it might be in retirement. Our RRSP vs TFSA guide and the RRSP vs TFSA calculator walk through that trade-off.

Meet Maya: a 25-year-old's starting plan

Suppose Maya, 25, lives in Winnipeg and earns $48,000 a year. The calculator estimates her 2026 federal and Manitoba income tax at about $7,905, an average rate of 16%, with a marginal rate of about 27% on her next dollar. With a moderate tax rate today, she decides to start in her TFSA.

She has $4,000 saved and plans to add $3,000 a year until 65. The illustration assumes 6% returns before retirement, 5% after, 2% inflation, an estimated CPP of $900 a month at 65 and full OAS. On those inputs, her TFSA reaches about $309,468 in today's dollars at retirement.

The calculator then finds the highest steady after-tax spending her savings, CPP and OAS could support to age 95: about $34,600 a year. If she waited until 35 to start the same $3,000 a year, that figure falls to about $28,500. The contribution is identical; the difference comes from the extra ten years of growth.

A steady line versus a bumpy path

The projection above assumes the same return every year. Real markets move up and down, and the order of good and bad years matters, especially around retirement. A Monte Carlo simulation runs the same plan through hundreds of randomized return paths to show a range of outcomes instead of a single line.

With the same inputs and 10% annual volatility, about 38% of 500 simulated paths kept Maya's savings above zero to age 95, and the median path ran out around 87. Her savings at 65 ranged from about $160,411 in the weaker 10th-percentile paths to about $496,754 in the stronger 90th-percentile ones.

That isn't a verdict on Maya's plan. Spending set at the steady-line maximum leaves no margin for poor years, so the range is wide. It shows why people often revisit a plan every few years, and why a little extra saving or flexibility in spending can widen the margin. Our Monte Carlo guide explains how to read these results.

CPP is already working in the background

If you work in Canada outside Quebec, you and your employer contribute to the Canada Pension Plan on earnings between the $3,500 basic exemption and the 2026 YMPE of $74,600. The 2026 employee rate is 5.95%. Worked from those figures, Maya's contributions on $48,000 come to about $2,647.75 for the year, matched by her employer.

Quebec workers contribute to the Quebec Pension Plan through Retraite Québec instead; the amounts are similar but not identical. Either way, your contribution record is worth checking once a year for gaps or errors. Our CPP guide explains how the pension is calculated from that record.

Debt, cushions and workplace plans

Retirement saving sits alongside other goals in your 20s: student loans, rent, a car, maybe a first home. High-interest debt can grow faster than savings, so many people weigh paying it down against starting to invest. There's no single answer, but it helps to know the interest rate on each balance.

An emergency fund is another building block. Without one, an unexpected bill can force a withdrawal at a bad time. If your employer offers a group RRSP or pension plan with matching contributions, the plan booklet explains how the match works and when it becomes yours.

Early careers often involve moves between jobs or provinces. Registered accounts stay with you, and money in a group RRSP can often be transferred to an individual RRSP when you leave an employer; the plan administrator can confirm the options and any timing rules.

Habits that scale with your income

The amount matters less in your 20s than the routine. Some people raise their contribution each time their pay rises, so saving grows without a noticeable drop in take-home pay. Others review their plan once a year, around tax time, when RRSP room and TFSA room are fresh.

Try your own numbers in the retirement planner, then see the full sequence of milestones in our retirement timeline. When you reach the next decade, the in your 30s page picks up where this one leaves off.