Raising a retirement fund

There’s a lot to consider when you’re setting up a retirement fund. Here’s a little advice to help get started.

Just like good wine, your retirement savings get better as they age – more importantly in this case, they get bigger! The younger you are when you start raising a retirement fund, the easier it’s going to be. That’s because you’ll benefit from compound interest—or interest earned on top of interest.

Say you start saving at age 25, and put aside $3,000 a year in an RRSP for 10 years and then you stop saving completely. By the time you reach 65, you’ll have earned more than $63,000 on your $30,000 investment, for a total more than $93,000 (assuming a 3.25% annual return). Not bad considering you didn't contribute a dime beyond age 35.

Now let's say you put off saving until you turn 35, and then save $3,000 a year for 30 years. By the time you reach 65, you’ll have set aside $90,000 of your own money and it’ll grow to about $153,000, assuming the same 3.25% annual return. Again, you’ll have earned just over $63,000 – the same amount as in the first example. Your earnings are the same, even though you’ve contributed an extra $60,000 in this scenario.

If you haven’t already started saving, don’t panic, don’t worry – get started. There’s no better day to start your RRSP than today.

How much do you need?

Most people need a retirement income between 60% and 90% of their pre-retirement income to maintain the same standard of living. Put together a working budget for your retirement years and you’ll have a good sense of what you’ll need to save. Of course, the younger you are when you retire and the more lavish your retirement dreams, the larger nest egg you’ll need to build.

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