If retirement is still a long way off, time is on your side.
Not only does starting early give you more time to save, it also increases the power of compounding (generating earnings from previous earnings).
So how much difference does a few years really make?
Take the example below, notice the difference in what you would have saved by age 65 depending on when you began investing. Saving the exact same amount each month, you could be looking at over $300,000 more for retirement if you had started five years earlier (age 30 versus 35).
Source: Edward Jones. Assumes Investing $550 per month and a 7% average hypothetical annual return. This example doesn't include taxes fees and commissions which could reduce the return. Figures rounded to the nearest $5,000.
This bar chart shows that waiting even a few years to start saving can significantly decrease the amount of money you'll have when you're ready to retire. The tallest blue bar shows that you could have a portfolio valued at $990,000 by age 65 if you started investing $550 per month with a 7% annual return at age 30. The next tallest blue bar shows that same portfolio with same investment amount and annual rate of return would be valued at $670,000 by age 65 if you started investing at age 35. The next tallest blue bar shows that same portfolio with same investment amount and annual rate of return would be valued at $445,000 by age 65 if you started investing at age 40. The last and smallest blue bar shows that same portfolio with same investment amount and annual rate of return would be valued at $285,000 by age 65 if you started investing at age 45. This example doesn't include taxes, fess and commissions, which would reduce the return. Figures are rounded to the nearest $5,000.
Simple ways to start saving
Even if you don't think you'll be able to put much away for retirement, there are some simple ways to start saving.
- Pay Yourself First
Savings should be part of your monthly expenses, not just the leftovers. A simple way to do this is to automatically invest a portion (even if it is only a small amount at first) of your paycheque. In many cases, you can set up payroll deductions through your employer into your company retirement plan or a pre-authorized debit (PAD) from your bank account into a retirement account.
- Your Employer Can Help
There are few, if any, investment options that can compare with the value of the employer match and its role in your retirement strategy. This offers the potential to have significantly more savings at retirement. Even if the ability to save may be modest, individuals should take advantage of the full employer match, if available. Clients should consider maximizing the employer match first before making contributions to their individual RRSP – don’t leave “free money” on the table.
It's never too late
If you are closer to retirement, remember it's never too late to start thinking about your future. Now is the time to get specific about your desired lifestyle, spending and sources of income in retirement.
- Ensure Your Investments Align with Your Goals
You may want to invest aggressively to “make up for lost time,” but this could actually increase the risk that you won’t reach your goals. Talk to your financial advisor about how much risk you should be taking, based on when you plan to retire and how much you'll need.
- Determine Your Flexibility
You might be surprised where you’re spending your money and may have more flexibility than you think. Taking your lunch, saving your raises and reducing discretionary expenses are some ways to increase savings.
How we can help
No matter where you are on the road to retirement, your Edward Jones financial advisor can help you find ways to get you where you want to be. Contact him or her today.