Your personal path to a secure financial future requires a map – a financial plan – that is unique to you and your life goals. But every financial plan has one essential component -- and that is to commit to saving right now.
Sure, it can be difficult to create an investment portfolio and contribute to it regularly in the face of everyday realities like utility bills, car loans, mortgage payments and all the other demands on your hard-earned money – but for the sake of your financial future and a comfortable retirement, you must find a way to save now. But don’t despair, don’t put off saving until that magical day sometime down the road when you have a few extra dollars to invest – instead, start PAC-ing right away.
A PAC (Pre-Authorized Contribution Program) is an easy and consistent way to get a monthly investment plan working for you. You simply arrange with your bank to deduct a specified amount from your savings or chequing account on a regular basis and place it in your investments held in a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA), or your non-registered portfolio.
It’s much easier to contribute by investing small amounts automatically – for example, 10% of your earned income each month – and you will be surprised at the amount you can gain from PAC-ing it into your investments held in a RRSP each month. Here’s an example:
- Put $250 into your investments held in a RRSP monthly and (at annual rate of 8 %) you’ll have $354,230 in tax deferred assets after 30 years.*
- But if you wait until the end of each year and find a way to invest a lump sum of $3,000, you’ll have only $339,850 on a tax deferred basis.
- So, by PAC-ing monthly, you add potentially $14,380 to retirement fund without costing you an extra penny and without the financial stress of coming up with $3,000 as the RRSP contribution deadline looms.
The math and the effects on your retirement lifestyle are clear: Decide not to PAC, or don’t manage to come up with a $3,000 lump sum contribution each year, and your retirement fund will be shorted by over $300,000! Get PAC-ing right away and you’ll benefit from the advantage of dollar cost averaging and the magic of compounding. Your regular PAC contributions will also generate a tax benefit along with the tax-deferred growth in your registered portfolio.
PAC-ing now will secure both your financial future and your retirement lifestyle. Talk to your professional advisor about the monthly investment plan that best suits your budget and your financial goals.
*The rate of return is used to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment.
This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.