The Financial Literacy Video series is your exclusive gateway to financial empowerment brought to you by Wiegers Financial & Benefits. In this series, we offer invaluable perspectives and tailored approaches to bring your financial goals to life. Whether you’re just beginning or seeking to refine your financial planning, we have the resources for all. Stay tuned as we explore essential financial topics in the coming posts, and let’s work together to unleash your financial potential. Your brighter financial future starts here. In our latest VLOG, Taylor Szeto, a trusted financial advisor will provide you with information about the important of making a commitment to your savings.
The Why and How of Savings
As John L. Beckley once said, most people don’t plan to fail, they just fail to plan. This rings true not only for financial security but also for achieving life goals. Let’s explore how the vital role of a successful plan and the creation of positive and healthy saving habits.
Comparing RSPs and Tax-Free Savings Accounts
To better understand the benefits of planning and saving, let’s compare two popular savings accounts: an RSP (Registered Retirement Savings Plan) and a Tax-Free Savings Account (TFSA). In an RSP account, contributions are tax-deductible, effectively lowering your net income. The growth is tax-deferred, and when withdrawals are made, they are taxed at your marginal tax rate. On the other hand, TFSA contributions and growth are both tax-free, and withdrawals are also tax-free.
The Power of Regular Contributions
Now, let’s take a look at the impact of regular contributions on these accounts. Using a hypothetical 5% rate of return, we’ll examine the market value after contributing $50, $75, and $100 a month for two, four, and six years. As shown in the video below, even with a modest monthly contribution, the difference in growth between $50 and $100 per month can be significant after six years.
Monthly Contributions for Retirement Goals
Setting a retirement goal is essential, and understanding how much you need to contribute each month is crucial for achieving it. In the video below, we illustrate the necessary monthly contributions for individuals of various ages aiming to reach a goal of $500,000 by the age of 65 with a 6% rate of return. A 20-year-old would need to contribute $191 per month, while a 40-year-old would need to contribute $740 per month. Lastly, a 60-year-old would have to contribute $7,200 per month to achieve the same outcome.
Comparing Investment Growth
To further emphasize the benefits of starting to save early, we compare in the video below the investment growth of a 25-year-old and a 40-year-old. Assuming both individuals have an initial investment of $1,000 and contribute regularly, the younger individual would have 40 years of investment growth compared to the slightly older individual’s 25 years. With an annual rate of return of 5%, the net difference between them is an astonishing $233,915.
What all of this makes clear is the importance of planning and committing to savings for a secure financial future. Whether it’s choosing the right savings account, understanding the impact of regular contributions, or acknowledging the advantage of starting early, every step towards saving contributes significantly to your retirement goal. Remember, planning is key, and failure to plan can lead to missed financial opportunities. Listen to Taylor explain below how we can help you advance your own commitment to saving, or check out our other financial resources.
Taylor Szeto, B.Comm.
Account Representative, Manulife Securities Investment Services Inc.
Insurance Representative, Wiegers Financial and Insurance Planning Services Ltd.
The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Investment Services Inc.
Mutual funds are offered through Manulife Securities Investment Services Inc. Insurance products and services are offered through Wiegers Financial and Insurance Planning Services Ltd. Banking products and services are offered by referral arrangements through our related company Manulife Bank of Canada. Please confirm with your Advisor which company you are dealing with for each of your products and services.