How to Plan for a Million-Dollar Retirement
Why it pays to start saving for retirement now.
It seems crazy to think about saving for retirement when you’re in your twenties, right? After all, it’s so far away. And won’t the Canada Pension Plan look after you? Sure, if you think you can live comfortably off the average monthly CPP cheque of $685.11.
Saving while you’re young gives you a great head start because of compound interest. This is where you earn interest on the money that you deposit in your savings account, plus you earn interest on the interest.
How much you need to save to make it to a million.
To reach the million-dollar mark in 40 years with no current savings, assuming a conservative return of 4%, you’ll need to save $879.17 a month. But you can wait until you’re earning more, right? That’s true, but if you wait 10 years before you start saving, that monthly amount almost doubles to $1,491.67. If you leave it until there are only 20 years left before your retirement, you’ll need to save a hefty $2,808.33 a month.
Start saving regularly into a high interest account like a 1.25%[i] Elite Savings account. Then, once you have a base of savings to work with, start investing longer term where the returns are higher, such as in an Enhanced Growth term deposit, which can earn up to 22%[i] over the next five years.
Where does the money come from?
Even if you have no “spare” money to invest, there are plenty of simple but effective ways to reduce your spending and start saving.
Make and take your morning coffee with you.
Buying a coffee every morning can cost you $15 - $25 a week. Make one before you leave and take it with you.
Monthly saving: $60 minimum.
Stop eating junk food and take your lunch to work.
Take leftovers or a sandwich for lunch. Even allowing for the higher grocery bill, your savings could easily be $25 a week.
Monthly savings: $100 minimum
Borrow for free instead of buying or renting.
Inter-library loan networks mean there are tens of thousands of books, comics, films and TV shows available to you from your local library, all for free.
Monthly savings: At least $25.
Bundle or get rid of your home services.
Bundle your TV, Internet and home phone, or consider ditching your home phone and cable altogether. Use your cell phone and stream shows on providers like Netflix or your library service.
Monthly savings: Around $50.
Save on banking.
A chequing account can cost you anywhere from $11 – $30 per month. First Calgary’s No Fees For Me chequing account is completely free, with no minimum balance required.
If you carry a high-interest credit card balance, make your monthly payments more manageable with an affordable alternative like a consolidation loan or a line of credit. You could save hundreds of dollars in interest every year.
Monthly savings: At least $11 on the chequing account, plus serious savings on your credit balances.
Save when shopping.
Loyalty programs can make for savings as high as 5 – 10% on your weekly groceries.
Buy clothes in end-of-season sales or at thrift stores.
Monthly savings: At least $40 on groceries alone.
Negotiate when renewing your insurance.
When car and home contents insurance come up for renewal, shop around, negotiate with the company directly or use a broker. First Calgary members enjoy preferred rates for auto and home insurance, as well as travel and life insurance.
Monthly savings: $5 – $10 minimum.
Starting down the road to your $1-million retirement.
All these cost-saving steps require is a little dedication and planning. When you add up all of these savings, you’ll have an extra $291 (minimum) per month in your pocket.
If you save that amount every month in a high interest account and then move it to an investment that’s bringing you a 4% return, it will grow in value in 40 years to be worth $331,829.10. That’s over a quarter of a million dollars just by making small savings. Imagine how much you can build up when you start actively putting extra money into your savings account!
What are you waiting for?
If you start saving now, with time on your side, you’ll soon build up substantial savings.
Book an appointment now with First Calgary and we’ll help you get on the path to your million-dollar retirement.