Saving to Retire

I see too much pessimism on whether it’s possible to achieve a comfortable retirement.

Hence, I highlight three observations on saving for retirement:

  • Surveys frequently remind investors that they don’t save enough for retirement.
  • Investors are keen to know what it takes financially to achieve a comfortable retirement.
  • This is a good time to start the optimistic retirement math discussion.

The number often mentioned is rounding up financial assets of $1,000,000 by age 65. However, accumulating that sum of money may be a tall order for some.

It can be done, but it is not always easy. So, I propose meeting halfway, say at $500,000.

Typical sources of income and capital are the registered accounts, saving accounts, stocks and bonds. Perhaps, income real estate, employer pensions and a family business also fit.

Adding regular savings to your investing plan is simply a must to reach retirement goals. Your degree of financial success has a lifetime of implications.

Assume you begin saving at age 30, 40 or 50 and have no other retirement assets. Here are some annual saving targets to reach $500,000 by age 65 (figures rounded):

Annual Returns to Age 65 Your annual saving targets starting at:
Age 30 Age 40 Age 50
8% $2,900 $6,800 $18,400
7% $3,600 $7,900 $19,900
6% $4,500 $9,100 $21,500
5% $5,600 $10,500 $23,200
4% $6,800 $12,000 $25,000

Say you are age 40, you will need to save $10,500/year to age 65 with 5% returns. That saving target reduces to $7,900/year to your age 65 with 7% returns.

If your aim is to accumulate $250,000, divide the above annual saving targets by two. For the $1,000,000 goal, multiply the above saving targets by two.

An interesting exercise is your total saving injections, say at the 5% returns. Here is the range of total savings you contribute to achieve $500,000 by age 65:

Total savings you contribute with 5% returns, by starting at:
Age 30 Age 40 Age 50
$196,000 $262,500 $348,000

You supply far less savings by starting early, say at age 30 vs 50. Ponder these key reflections for your retirement saving journey:

  • Stop dwelling on all the pessimistic surveys and take them with a grain of salt.
  • Find your sustainable saving target and add it regularly to your nest egg.
  • Waiting to start accumulating your retirement saving journey is costly.
  • Starting early allows you time to recover from investment losses.
  • Invest steadily, especially during bearish markets.
  • Sporting optimistic attitudes pays off in the end.

There are always some bumps along the way, but don’t let them spoil your objectives. Stick with simple strategies to save for your retirement, such as the RRSP and TFSA. Planning helps immensely.

Adrian Mastracci, Discretionary Portfolio Manager, B.E.E., MBA  started in the investment and financial advisory profession in 1972. He graduated with the Bachelor of Electrical Engineering from General Motors Institute in 1971,  then attended the University of British Columbia, graduating with the MBA in 1972. This blog is republished here with permission from Adrian’s website, where it appeared on March 11, 2017

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