The Winnipeg Free Press
Business, Sunday, February 26, 2006, p. e1
By Randy Reynolds

For a few weeks now, I have written about how much money a person needs in order to retire. The figure of $1 million has been suggested and disputed by a number of readers.

It seems that whether or not you believe that a million dollars is necessary, the majority of people don't really believe it's possible to save that much anyway. The real issue in retirement planning revolves around two things: How much will you able to save before you start to draw income and how much income will you actually require when you get there.

If you can't reconcile those two numbers, you're going to have some problems.

Last week I stated that saving $1 million was possible if you started early enough in your life and were disciplined in sticking to a plan. This week I received the following e-mail.

Hi Randy:

I can support your statement that $1 million in one's registered retirement savings plan is reachable.

My wife and I have RRSPs in the amount of $2.1 million. I am 63 years old and my wife is 60.

We have seldom, if ever, contributed the maximum amount to our RRSPs but have always contributed the maximum that our incomes would allow. Typically, our contribution is $10,000 per year. We have never missed a year since we both started working in our mid 20s.

The key, as you and other financial advisers say, is that you have to be focused with a plan and stick to it. I had originally planned on hitting $1 million by the time we retired. I guess we were lucky along the way.

Signed, "Well off, but not wealthy."

Lets take a look at how he might have done it. Let's say he was 25 when he started. That would be 38 years ago when the equivalent of $10,000 was only about $2,500 (using four per cent as a rate of inflation). So if he started putting away $2,500 a year and increased it by four per cent per year for 38 years, he would be depositing a little over $10,000 per year by 2005.

He says he never missed a year. That would mean to achieve half of the $2.1 million he says he and his wife have, his annual rate of return on investment would only have had to average 8.5 per cent per year. That isn't a ridiculous number.

Over the last 38 years, the average annual compounded rate of return on Canadian stocks has been in the neighborhood of 10.5 per cent. The return on U.S. stocks has been about 11.5 per cent and the five-year guaranteed investment certificate rate has averaged about 7.5 per cent.

So if our e-mailer invested 30 per cent of his money in good Canadian equity funds, 20 per cent in U.S. equity funds and half in five-year GICs, he would have had no problem achieving eight and a half per cent annually on his RRSP account.

There is no secret to his success. I would dispute the e-mailer's contention that he has been lucky. Having discipline is not the same as being lucky and he should give himself more credit.

Currently, the government allows Canadians to contribute up to 18 per cent of their earned income to an RRSP, to a maximum of $16,500 per year. That means you could match our e-mailer if your income is $56,000 a year or higher.

And that's just his half. Two people with total income of $56,000 a year could save $1 million in their combined RRSPs over a 38-year period.

So if you have children and they're in their mid-twenties and starting to work, do them a favor and share this e-mailer's story with them. The sooner they start putting aside a part of their paycheques, the sooner they may become millionaires.

Randy Reynolds is an adviser at Griffiths Reynolds Stalker and a provincial manager for Worldsource Financial Management. Contact him at 982-4743 or e-mail gfsrr@mts.net.

Category: Economy
Uniform subject(s): Financial products and services; Personal investments and finance
Length: Medium, 502 words

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