You’re 21, newly graduated, starting a career, with a few dollars of your own money in your pocket for the first time, and solid prospects of more to come for a long time.
What to do with that money? Save for a trip to Europe? Buy that new car? Or get a head start on your retirement portfolio?
Who’s thinking about retirement at 21? If you’re not, you’re far from alone. A recent survey found that Canadians aged 18 to 34 were among the least likely to have contributed to an RRSP for the 2009 tax year at 29 per cent, compared to the national average of 36 per cent. The same was true of TFSAs — while 32 per cent of all Canadians had opened a TFSA as of March 2010, less than a quarter (23 per cent) of those aged 18 to 34 had opened one.
Sure, it’s always difficult to save for the future — especially for young Canadians, often strapped for cash, with student loans to pay off, and lots of new expenses to support their new lifestyle — but the experts and many years of investing experience tell us in no uncertain terms that starting young, even if you have to start small, is the key to investing successfully for retirement. Think of it this way: you’ll be working for between 30 and 40 years, so you should get your investments to work as long as you’re working for your retirement.
The longer you are in the markets, the more your savings will grow over time. Slow and steady can win the race to a comfortable retirement — here’s why:
• Mary invests $2,000 at the beginning of each year between ages 21 and 29, for a total of $18,000 over nine years. Assuming a pre-tax return of seven per cent, by age 65, she will have $315,675 in savings.
• Lynn also invests $2,000 at the beginning of each year with the same pre-tax returns but starts at age 30. To get near Mary’s savings total of $315,675, Lynn will need to invest nearly four times as much — $70,000 over 35 years.
And here are some investing tips to get you going:
• Are you investing to buy a house or for retirement? Knowing where your money’s going will help you define how to invest.
• Do your research. You need to be comfortable with your investments and the best way to do that is to become knowledgeable.
• Talk to a financial planner. Even if you only have a little money to invest, a financial planner will be happy to help you. It’s in their interest to establish a relationship with young investors who will be clients for a long time.
It’s always profitable to start investing early and developing good financial habits. That way, you’ll have more options for how you want to live your life from here to retirement … and beyond.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.