Sure, a million dollars isn’t what it used to be, but it’s still a good chunk of cash to retire on.
With good planning, discipline, and an early start, that million-dollar milestone could be all yours. Knowing how to reach that goal requires a mathematical understand of compounding. One good illustration involves using the ‘rule of seven’ to explain what you need to save each month to be a millionaire at 65 years old.
It involves two assumptions: $10,000 in savings and an annual inflation-adjusted growth rate of seven per cent.
The longer you wait, the more you need to contribute each month.
25 YEARS OLD: WILD AND FREE
If a 25-year old with $10,000 invested $320 a month at a 7 per cent annual compound rate of return until they turned 65, they would wind up with $1 million.
At 7 per cent, your money doubles roughly every 10 years.
35 YEARS OLD: KIDS, HOUSE PAYMENTS
Instead of $320 per month, you’re looking at saving $775 a month to turn that $10,000 into seven figures. With kids and a mortgage, wouldn’t it be better to keep contributing $320 a month?
45 YEARS OLD: ESTABLISHED
You’re in your high-earning years but you’ll need to add $1,850 every month to that $10,000 base in order to reach $1 million in 20 years.
55 YEARS OLD: THE STRUGGLE
Now the amount needed to reach $1 million with a $10,000 bankroll is $5,700 a month for 10 years. $320 a month thirty years ago would have been so much easier.
If you have any questions about regular contributions to your RRSP or TFSA and investment options, contact the Andrew Pereira Financial Planning team today!
Andrew Pereira – Financial Consultant
519-358-1115 ext. 226
Cassie Fryscok – Associate Consultant
519-358-1115 ext. 222
