Time is on the side of young investors

Becoming a millionaire might be more achievable than young Canadians realize, according to a TD Canada survey. Just a fist full of dollars a month, provided the saving starts early.

The TD Canada Trust Millionaire’s survey, which polled 689 randomly selected Canadian adults aged 18-34, reveals young Canadians, despite having the power of compounding on their side, don’t believe they could have $1 million banked by retirement.

One-third of the participants say their best shot at it is to win the lottery. Only one-in-ten said they could retire with $1 million by socking away money each payday.

“The reality is that for Canadians who are several decades away from retirement, with good discipline, the right financial plan, and smart investments, heading into retirement as a millionaire is an attainable goal,” says Carrie Russell, senior vice president, TD Canada Trust. “The idea of retiring a millionaire sounds daunting to most, but there are steps you can take to reach that goal—with no lottery tickets required.”

With the March 1 RRSP contribution deadline looming, TD Canada Trust has issued a simple illustration of how young investors can get on track for retiring a millionaire.

Age	Savings per month
25 to 30	$100
30 to 35	$250
35 to 40	$500
40 to 50	$750
50 to 65	$1,000

At first glance it may seem all it takes is saving $100 a month at the age of 25, while increasing the amount as you age and earn more. There’s more to it, though. This chart assumes contributions are directed into an RRSP account, benefiting from the tax deferred growth and earning a 6.8% rate of return per year, compounded monthly.

A rather achievable objective considering, as the survey found, young Canadians over-estimate the amount they need to put away each month to be a millionaire in retirement.

Sixteen per cent of those polled think they need to save $1,000-$2,000 per month and another 16% think it’s more than $2,000 per month. A further 22% do not believe it is at all possible to accumulate $1 million by putting away money with each paycheque.

“If you do the math, you quickly realize that retiring with a million dollars is achievable for a significant number of young people with a steady and growing income, who have the advantage of time and compound interest on their side,” says Russell. “If you are in your twenties, start today by putting away $100 a month into your RRSP and then plan to increase that amount as your earnings increase.”

While there is no reliable get-rich-quick formula, Russell offers three simple steps that can help achieve a comfortable life in retirement.

“Start now. Save monthly. Increase your regular RRSP contributions as your salary increases.”

The good news is that younger Canadians attach considerable importance to retirement planning. Even if their ultimate goal is not a million dollars nest egg, they tend to be more committed to retirement planning than their elders, as discovered by the recent National Bank Retirement Index survey.

The study shows Canadians aged18 to 34 years place a higher degree of importance on retirement, with the overall score of 7.6 out of 10. Those in the 35-49 and 50-64 age brackets scored 7.1 and 7.5 respectively.

The youngest lot of respondents also claim to be much more confident regarding financial issues, with a Retirement Index score of 5.1 out of 10.

While this level of confidence regarding retirement may be considered low, it is rising and is a factor responsible for a greater commitment during the current RRSP season.

The study notes that 39% of Canadians from 18 to 34 years of age plan to contribute to an RRSP before the March 1 deadline. These Canadians also plan to contribute on average $5,167 to their RRSP, a lot more than their counterparts in the 35-49 and 50-64 age brackets, who plan to contribute $4,186 and $5,032 respectively.

Further, more than half of all Canadians age 18 to 64 plan to invest all or most of their RRSP contribution in mutual funds. In contrast, 56% of Canadians 65 and over who intend to invest all or most of their RRSP funds in principal-protected solutions, 43% of them plan to use a combination of variable- and fixed-rate GICs.