Hi!
For you investment specialists:
If I invest $1,500 per month into an RRSP for the next 25 years, how much will I end up with?
Also, what will the future amount be worth in today’s dollars as far as buying power? I know there’s programs to figure this stuff out.
Thanks
Crazy
This is an impossible question to answer without more information. How much risk can you tolerate? That will be an indicator of what forms of investment you plan on using. All of which will result in a different rate of return. Regarding RRSPs, from this site.
Then you need to make an assumption about the rate of inflation which reduces the buying power of your money (as you recognize per your OP).
There are numerous financial planning calculators online. I’ll mention one (I don’t work for Fidelity BTW). Fidelity has a nice retirement planner feature. Go the the site, select the “Planning and Retirement” menu - “Retirement Investment Center” - “Getting Started” - and finally “Retirement Planning Calculator”.
Algernon,
Thanks for the reply, I went to the site & played around with the planner, it’s a cool feature.
Since this will be for my retirement, my risk tolerance will be close to “zero”
My goal is to make sure I have enough money there to live from when I can’t earn anymore.
Regards
Be careful about assuming a zero risk tolerance. The more risk you are willing to take the more you are likely to make over a long period of time.
For instance if you accept a guaranteed return of 4% over twenty five years you would have $770,000 in twenty five years. If you invest in the market and take some risk you would have twice that even with a modest 8% annual return.
As for the mathematics, I use a financial caluculator. Probably not an investment of time and money someone not in the profession would want to make. It does allow for much more versatility in my assumptions than any online calculator would.
CrazyFoo, I don’t know your age but given your OP I have to assume you’re at least 25 years from retirement. Given that fact, I’d suggest re-thinking your risk tolerance.
Over the long term, equities have (historically) significantly outperformed “zero” risk investments. In fact, given current interest rates, a “zero” risk investment is nearly equal to the inflation rate. In that scenario, you’d end up with no more buying power than your intial raw dollar investment. In other words, inflation would negate your investment return.
Financial advisors preach diversification. Create a portfolio of international equities, domestic equities, bonds, t-bills, etc. (best accomplished via mutual funds). This strategy provides the best return for a relatively small risk. Given your age however, I’d personally recommend a heavy allocation to equities. You’re in the wealth building part of your life. The horizon is a long ways away, and you have more than enough time to recover from a short-term bear market (like the last three years).
So I’d suggest being aggressive. As always though, if it keeps you up at night worrying, then you’re invested too aggressively for your taste.
Thanks!
Algernon, I’m 37, and plan to retire at age 60.
I just left a cushy well paying government job to go out on my own, and while I have nearly doubled my income, I forfeited my pension and security.
Everything in life has a risk right?
So since I don’t have the luxury of a pension plan anymore, I want to make sure I have a healthy nest egg come the day of my retirement.
I can probably afford to put away more than $1,500 per month, but I want to be realistic.
Thanks for your advice.
You are wise to be thinking about this now. I commend you for your foresight to prepare for your retirement. Too many people don’t get serious about it until it’s nearly too late.
The key is to be disciplined…
Invest monthly (a little added to a little results in a lot due to the power of compounding).
Invest wisely (decide on an allocation strategy and don’t try to time the market).
… and you’ll reap the rewards.
Over the course of the last 20 years, even through three bear markets, this strategy has paid off handsomely for me.
Good luck.