Life is not how social media portrays it. I am not talking about all the happy smiling, exotic cars, and sunny vacation pictures. I am talking about the “easy investing strategy” that is stated almost weekly on these platforms. If you don’t know what I mean, I am talking about the statement of “becoming a millionaire is as simple as investing $500 a month from age 18 to 65 with a 10% return.” Yes, the math on these statements are accurate, but it is not realistic. Let me walk you through the reality of how most people end up investing their money from age 18 to 65.
The early years
At age 18, most people are either in university or college or are entering the workforce after secondary school. I am not sure about you, but I never had an extra $500 a month to invest at the end of the year when I was 18. Between trying to balance school and some sort of social life, I was only able to work part-time. Any money I made from my part-time job went towards living. If I still had some money left over at the end of the month, it was by pure chance. So for the most part, people are not investing much (if at all) at this age, let alone $500 a month.
Starting your career.
Once you start your career and are making some money, this is when you can start to put some money away for retirement. The issue we run into at this point is that retirement is not the top priority. I would guess that most people are trying to save up for their first home, a new car, or vacations. So, even though they are saving money, most of it is being put towards these short-term goals and not retirement. Why would someone put $500 a month towards retirement when they could put that towards a downpayment on a home?
Building a family
This is the stage where investing for retirement is rocky. At this point, there is possibly a mortgage and renovations/maintenance costs to deal with and possibly all the costs associated with building a family. Most of the income is set aside to pay for all these things, so saving $500 a month could be feasible. At this point, there’s been 10+ years of investing power lost and now they need to make up for lost time. This stage of life is generally where people will start putting away $500 a month for retirement as short-term goals are completed. However, the ability to increase investment payments above $500 to make up for lost time is probably a lot lower because of lifestyle spending, and the reality is that amount may not be enough to make up for lost time.
Living with teenagers and empty nesters
At this point, the kids are older (or even out of the house) so what you are spending on them may be lower. In theory, you are in your prime earning years and hopefully have finally paid off any debts owed like a mortgage or car loan. This is the time when people can start to put thousands of dollars toward their retirement. Typically, most of the money that had gone towards a mortgage or debt repayment can go towards retirement. This is when people really put focus on retirement and want to make sure that they have enough money to afford their retirement lifestyle.
Summary
I know I have talked about a lot of stages in life and it all comes down to this: can you still achieve your retirement dreams if life is playing out like what I described? The answer is yes. Let me provide a realistic example for you illustrating what you can achieve by investing from age 25 to 65.
Age 26-35 invest $200 a month with 8% return = $36,589 at age 35
Age 36-45 invest $250 a month with 8% return = $126,767 at age 45
Age 46-55 Invest $300 a month with 8% return = $336,263 at age 55
Age 56-65 invest $2000 a month with 8% return = $1,112,274 at age 65
Keep in mind that this is just what you have personally saved. If you took advantage of even a 5% group RRSP with some kind of matching over your working years, the example’s total retirement figure will be even higher. In the end, don’t get down on yourself because you are not able to save $500 a month at age 35 with a mortgage and kids, or if you need to stop investing altogether for certain years. There are strategies to still achieve your retirement goals that are more realistic to your lifestyle.
