The freedom to make your retirement dreams a reality — wouldn't that be wonderful?
You can do it. All it takes is money and that's why saving throughout your life is important.
But with the everyday reality of utility bills, mortgage payments, car loans or lease payments and the many other demands on your hard earned money, creating an investment portfolio and regularly contributing to it can seem like an impossible task — and there go your retirement dreams.
It doesn't have to be that way, when you PAC for your retirement starting now. A PAC (pre-authorized contribution program) is a simple, straightforward and consistent way to make an affordable monthly payment to your investment plan, the same way you would for any of your other monthly commitments.
It's easy to do – just arrange with your bank to deduct a specified amount from your savings or chequing account on a regular basis and contribute it to your Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) or non-registered portfolio.
Investing small amounts makes it easier to contribute. Ten percent of your earned income each month is recommended but you could also choose to invest weekly, bi-weekly, or quarterly. Here's what you would gain from PAC-ing $250 into your RRSP every month:
• At a compound annual rate of eight per cent you'll have $354,230 of pre-tax assets after 30 years. (The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment.)
• If you wait until the end of each year and invest a lump sum of $3,000, you'll have only $339,850.
• So, by PAC-ing each month, you add potentially $14,380 to your retirement fund without costing you one additional penny!
What happens if you don't PAC or come up with a lump sum $3,000 to invest each year?
You'll short-change your retirement fund by more than $300,000! That's why you should start PAC-ing right away. You'll not only benefit from the advantages of dollar cost averaging and the magic of compounding, your regular PAC contributions will also generate a tax benefit along with the tax-deferred growth in your registered portfolio.
By taking advantage of a PAC monthly investment plan, you could be taking the fastest route to financial independence and retirement freedom. Your professional advisor can help you pick the PAC that works best for you.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc.. His column appears every Wednesday.