Saving $1 million is easy
How hard is it to save $1 million for retirement? To answer the question, we have to look at a number of variables such as interest rates and number of years to retirement.
But, the net result is it may be easier than you think.
No matter what rate of return you are able to earn on your investments, the simple truth is the earlier you start the better.
Let’s assume your goal is to have $1 million in your portfolio when you reach age 65.
You increase the amount you save every year based on inflation, which we’ll say is two per cent.
We’ll also assume your investments grow at a modest six per cent annually.
Here’s what you’ll need to put away depending 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 early.
But, if young people 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 pretty tight, the majority of 25-year-olds can put away $90 each week if they make it a priority.
Ideally, those with moderate incomes will put this money away in their tax-free savings account (TFSA) so the $1 million nest egg they amass will be completely tax-free.
It’s not that difficult to earn six per cent a year on your investments.
A quick look at Fidelity’s Balanced Private Pool, which is a one fund solution for many portfolios shows an average return of 9.68 per cent annually over the past five years.
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 nine per cent per year, they could reach their goal by only putting in $42 per week instead of $90 a week.
Or, the same 25-year-old could stick to the $90 a 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 if you invest 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.