It's Your Money  

You can be a millionaire

How hard is it to save $1 million for retirement?

To answer that question, we must look at a number of variables such as interest rates, number of years to retirement, etc.

But the net result is that it may be easier than you think.

No matter what rate of return you earn on your investments, the real key to reaching your goals is starting to save as early as possible.

Let’s assume that your goal is to have $1 million in your portfolio when you reach age 65; you increase the amount you put in each year based on inflation (we’ll call it two per cent per year) and that your investments grow at six per cent per year.

The amount you will need to put away will depend entirely on your age:

  • An 18-year-old would need to invest $56 per week or $2,919 per year
  • A 25-year-old would need to invest $90 per week or $4,672 per year
  • A 35-year-old would need to invest $185 per week or $9,597 per year
  • A 40-year-old would need to invest $274 per week or $14,233 per year
  • A 50-year-old would need to invest $691 per week or $35,915 per year

Younger Canadians certainly find putting money aside for retirement hard with entry-level wages, student loans and the high cost of living but the numbers don’t lie.

It is substantially easier to reach your retirement goals when you start saving at an earlier age. Even when money is tight, if you stick to a budget and setup an automatic weekly or monthly withdrawal, you likely won’t even miss the money being set aside.

Although you may feel like your budget is tight, the majority of 25-year-olds can put away $90 each week if they make that goal a priority.

Ideally, those with moderate incomes will put this money away in their TFSA account so that the $1-million nest egg they amass will be completely tax free. For some, a mixture of TFSA and RRSP contributions might be best.

There is no doubt that there are lots of people out there not earning six per cent per year on their investments, but it’s really not that hard to do.

If you put the money into a well-diversified (i.e. not predominantly Canadian bank and oil stocks) portfolio with a moderate risk profile and don’t touch it or make any changes, you should very easily reach or beat your six per cent annual goal. 

In fact, a portfolio like the one mentioned above will quite likely earn a higher average rate of return over the long term. If you were to take the above example of a 25-year-old who needs to put $4,672 away per year to reach $1 million and had them earning eight per cent per year instead of six, they could have a nest egg of $1.6 million by the time they are ready to retire. 

So yes, in addition to starting early the quality of investment management you select is also very important.

There you have it, saving $1 million is not that hard to do if you invest it properly and start early.

Even if you can’t put away the full amount required each week to hit your goal right now, starting with any amount today will get you closer to being on track for the stress-free retirement you deserve.

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About the Author

Designated as a chartered investment manager and certified financial planner, Brett holds life insurance and investment licenses in B.C., Alberta and Ontario.

In addition to being the owner of Kelowna-based SPEIR Wealth Management Inc., Brett also serves as the vice-chair of the Financial Planning Standards Council of Canada’s board of directors. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations for the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FPSC board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected].

For more information or to see a database of previous columns, visit www.speirwealth.com.

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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