It's Your Money  

An easy way to save $1M

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

To answer that question, we have to 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.

Regardless of what rate of return you are able to earn on your investments, the earlier you start the better.

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.

If the above variables remain the same, the amount you will need to put away will depend on your age:

  • An 18-year-old would need to invest $56 per week
  • A 25-year-old would need to invest $90 per week
  • A 35-year-old would need to invest $185 per week
  • A 40-year-old would need to invest $274 per week
  • A 50-year-old would need to invest $691 per week

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.

But if they stick to a budget and setup an automatic weekly or monthly withdrawal, they likely won’t even miss the money being set aside.

Although they may feel like their budget is tight, most 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.

If you have a long-term time horizon, the six per cent rate of return is likely low too. Long-term investors need to be willing to handle market volatility and the longer-term average returns of major equity indexes is closer to nine per cent per annum.

If you were to take the above example of a 25-year-old who needs to put $90 away each week to reach $1M and had them earning nine per cent per year instead of six, they could reach their $1 million goal by only putting in $42 per week instead of $90/week.

Or, the same 25-year-old could stick to the $90/week investment goal and have a whopping $2.1 million in their investment account when they reach age 65.

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

So, 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

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of 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 FP Canada 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]

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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