This article is Part 2 of our four-part series on “Investing in your financial well-being.” The series line-up is as follows:

1. Money matters - addresses the fundamentals of financial planning, budgeting and investment.
   
   

2. Smart savers - focuses on effective saving habits and tools that can help Canadians maximize their financial resources.
   
   

3. Financial fraud - will provide crucial insights into protecting oneself from financial scams, a growing concern in the digital age.
   
   

4. Retirement ready - will guide readers through preparing for a financially secure retirement, a topic of paramount importance for individuals at any stage of their career.

Together, these articles are meant to not only inform but also empower our CSS Pension Plan members to take control of their financial destiny, fostering a community of informed, savvy and resilient individuals ready to face the financial challenges and opportunities of the future.

The series will be a comprehensive guide to achieving and maintaining financial wellness.

• Your first action item from Part 1 was to take the Financial Literacy Self-Assessment Quiz.
  
  
• Your action item for Part 2 is to complete the Retirement Savings Course (a free online educational course developed by the Association of Canadian Pension Management).
  
  

Developing effective saving habits and having access to the right financial tools are essential for Canadians looking to maximize their financial resources.

Part 2: Smart savers

Developing effective saving habits and having access to the right financial tools are essential for Canadians looking to maximize their financial resources. This article will delve into the concept of SMART savings goals, the importance of understanding one's risk comfort and capacity, and how automatic savings into a pension plan can significantly enhance your financial well-being.

Think about your savings goals

Specific. Measurable. Achievable. Relevant. Timebound. That is what “S – M – A – R – T” stands for. When you are setting your savings goals and objectives, be “SMART”.

• Specific – Clearly define what your specific savings goal is.
  • Examples:
    • “I want to save for university.”
    • “I want to save for my first home.”
    • “I want to save for my funeral expenses so my family won’t have to worry about the cost.”
      
      
• Measurable – Have a clear target in mind and consider breaking it into “milestones”.
  • Examples:
    • “I need to save $25,000 for my first year of university.”
    • “I am aiming to save $15,000 for a down payment on my first home.”
    • “I plan to save $10,000 for my funeral expenses.”
  • Milestone example:
    • “I’ll start by saving $5,000 now as the first step toward my $25,000 university savings goal.”
      
      
• Achievable – You know your spending and income matters best. Make your goals achievable, knowing that you might have to adjust your spending or income.
  • Example:
    • “I have about $200 in extra income per month that I don’t need right now. I will save that $200 towards my $25,000 university savings goal.”
      
      
• Relevant – You know yourself best – your emotions, your values, your beliefs, your “self.” Set goals that fit into your very realistic version of “you.”
  • Example:
    • “Sure, I also have about $100 to spend on charities and supporting my community. I will keep spending in that area, because that spending is important to my value and belief system.”
  • Don’t forget to also spend some time reflecting on your personal values, emotions and behaviours using the FCAC Habits Reflection tool.
    
    
• Timebound – Set deadlines. Be flexible and give yourself grace – as life and events do happen. But try hard to stick to your set deadlines, and only make adjustments when one of the other parts of the SMART goal is shifting too far.
  • Example:
    • “I will save $200 per month ($2400 per year), to build up towards my $25,000 savings goal for university. That will take about 10 years. I will find other savings opportunities to help bring that timeline down to about five years.”
      
      

Your savings goals will change over time. There will be opportunities to save more, and risks that may impact your savings abilities. It is important to do a financial check-in with yourself regularly (e.g., annually).

To help you get started with identifying your savings goals, fill out this savings goals worksheet. You may enjoy playing with this interactive “My investing goals” tool.

As you approach retirement, your financial priorities may shift. The myCSSPEN Compass® is an online tool designed to guide you in creating a personalized retirement income plan, helping you stay on track to achieve your goals.

Carefully consider your comfort with risk

There are many ways to invest your money, and as in any investment scenario, there is an element of risk. Some investment options are considered lower-risk (meaning, these investments are less likely to incur losses - but are also less likely to earn a significant return), some are considered higher-risk (meaning these investments offer a higher potential return but have a greater risk of short-term losses), and some are in between.

At CSS, we offer four investment funds – a Money Market Fund, Bond Fund, Balanced Fund and Equity Fund. Each fund – or combination of funds – has different levels of risk and expected returns. How you choose to invest your pension funds can impact your retirement plan.

Your comfort with risk depends on:

1. Your emotional willingness to accept risk (risk comfort or risk tolerance)

2. Your financial ability to absorb loss (risk capacity)
   
   

Your comfort with risk tells you how comfortable you are with not knowing what you will make from your investments and how well you can live with losses when your investments lose value.

Risk comfort, or risk tolerance, refers to an individual's comfort level with the uncertainty and potential for loss that comes with investing. It is a psychological trait and varies widely among individuals.

On the other hand, risk capacity is the financial ability to endure losses, which depends on one's financial situation, including income, debt and time horizon for investments.

It is important to assess both your risk tolerance and capacity when making investment decisions to ensure you are not taking on more risk than you can handle emotionally or financially.

Specific to your CSS Pension Plan account, CSS provides an online Risk Tolerance Estimator. This tool can help you understand which CSS investment fund (or combination of funds) may suit you based on your time horizon, investment knowledge and comfort with risk.

Pensions make saving more efficient

“Canadians in a workplace pension plan are able to save more efficiently.” (HOOPP, 2024). 

Automatic savings plans, particularly for retirement, have been shown to significantly increase savings rates and participation. When you’re automatically enrolled in a workplace pension plan such as CSS, contributions are directly taken from your paycheque and matched by your employer. This "pay yourself first" approach helps you save consistently. This method also benefits from compound interest over time, which can greatly enhance retirement savings growth.

Moreover, automatic savings reduce the mental burden of making regular transfers, ensuring that individuals make saving a priority. 

You are automatically enrolled in the CSS Pension Plan if you work full time for a participating employer and have completed your employer’s waiting period – which can’t be longer than two years.

If you work less than full time, it’s up to you to choose if you want to become a member of CSS after meeting requirements set out by pension laws. The only exception is Manitoba – you must join CSS if you are a less-than-full-time employee in Manitoba after meeting the minimum membership requirements. 

In conclusion, by adopting SMART savings goals, understanding your risk comfort and capacity, and taking advantage of automatic savings into a pension plan, you can significantly improve your financial stability and well-being. These strategies provide a structured approach to saving that can lead to more disciplined financial habits and a more secure financial future.