How do your retirement years look to you? Are you testing out new hobbies you've always been interested in and spending time at the lake? Or are you still working nine to five at your current place of employment? For most Canadians, the dream is the former. An important step in ensuring you enjoy your golden years is making appropriate financial plans early in life. If you're in your 20s or 30s, you may think you have plenty of time to plan for retirement and would rather spend your hard-earned money on that big-screen TV or getaway vacation you've been eyeing. Though it's understandable that you'd rather enjoy today and worry about the future in the future, such an approach could lead to financial woes down the road. When it comes to saving for retirement, the consensus is, the sooner the better.
The benefit of putting money into a retirement savings plan (RSP) is that it collects compound interest. That means the interest you earn from your contributions earns interest as well. So the longer your money sits in an RSP, the more it grows. TD Canada Trust estimates that, at a constant rate of return of 6 per cent, a $500 annual contribution over the course of 40 years will yield an RSP balance of $77,381, whereas investing $1,000 every year over the course of 20 years will yield $36,786. In other words, you can invest the same amount of money in your RSP but wind up with more than twice as much just by getting started earlier. So there truly is a whole lot to be gained by not procrastinating.
The number one rule of saving money is to pay yourself first. So rather than let money slip away from you unnoticed, commit to saving for your retirement. It's easy to do with services such as pre-authorized transfers, which transfer an amount you're comfortable with from your bank account to your RSP on a monthly basis. Just as you make paying your bills a priority, make saving for your future a priority as well. And now is the perfect time to start! The contribution deadline for 2012 isn't until March 1, so you still have time to start an RSP and start growing your nest egg.
If you want a demonstration that's specific to you as to how much money you can save, check out the retirement savings calculator offered by TD Canada Trust. Play around with the ages to see just how much more you can save by starting today rather than in 10 years. You can also experiment with your style of retirement living and investment interests to get a better sense of how you should be saving. From there you can stop by your bank to have a one-on-one talk with a financial advisor about what plans will work best for you.
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