Nowadays, Canadians will generally need over $1 million to live comfortably in their golden years when taking into account the average household wage, retirement age and life expectancy. Though this news may seem frightening, there are many programs and strategies out there that can help millennials planning for retirement accordingly.
For instance, through the Canada Pension Plan, most of us are contributing to a pension that will replace up to a quarter of the average income in retirement. With changes coming to the program starting in 2019, CPP benefits will begin to grow to replace up to a third of average work earnings.
If you work in Canada, contributions to the CPP are automatically deducted from your paycheque, and any funds not needed to pay current beneficiaries are invested by Canada Pension Plan Investment Board. This ensures that the CPP is sustainable for generations to come so that even your grandkids can rely on this stable source of retirement income when it is needed most.
But what about the remaining portion needed to make up your retirement income?
By investing into your personal retirement savings plan at an early age, you may get closer to your goal than you think. Take, for instance, the effects of compound returns. It might change the way you look at discretionary spending that could otherwise be put towards your life savings.
Instead of buying an iPhone X, which currently retails at around $1,500 after taxes, say you invested that money. Using CPPIB’s current 10-year average return of 6.2 per cent, your original investment would grow to $1,582.88 after one year. While this may not seem like much, compounding returns on that initial investment over 40 years would net $16,531.18.
You will receive exponentially more money the longer it is invested, but anything helps and the earlier you start the better off you will be in the long run.
So, when you save that $1,000 for retirement, don’t think of it as saving a measly $1,000 €” think of it as saving $10,000. That’s a lot closer to what its actual value will be when you need it.
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