Retirement rendez-vous bnc.ca/retirement - Chronicle N°5

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“I still have plenty of time, why invest now?”

When you’re 25, retirement seems like a long way off. You already have many other things to worry about—starting your career, buying a house, paying off your student loans... Why add to the burden by planning for an event that is some 40 years down the road?

Dominic Iannuzzi: Investment Manager

It is true that, with all the new financial responsibilities they have to face, it is difficult for young people to save money. However, experts are unanimous: when it comes to retirement, it is much easier to start saving when you are young, even if the amounts are small.

I often hear people ask: "Shouldn't I wait until my financial situation is on more solid ground before I start saving for retirement?" It's a very legitimate question. However, it is best to make the most of your working life-namely, some 30 to 40 years-to grow your money by capitalizing on compound interest, that is to say, the interest generated on your principal and the interest it earns.

Let's test this theory. Between the ages of 21 and 65, Phil invests a total of $54,000 by saving $100 per month in an investment with a pre-tax rate of return of 4%. When he reaches age 65, his investment will be worth $150,947 as a result of compound interest. Sam starts this process at age 31, with an investment offering an identical rate of return. However, to save just as much as Phil at age 65, Sam must save $165.20 per month, or, in other words, $15,384 more than Phil.

By starting to save early, you will have to invest less to accumulate the desired amount. If you're worried that you won't be disciplined enough to save, know that there are systematic investment plans you can turn to. These plans regularly debit a predetermined amount from your account. Whichever method you choose, you'll thank yourself later! 

 

 

Dominic Iannuzzi

Investment Manager

National Bank Financial

Organizations: National Bank retirement Chronicle

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