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Unprepared

Millennials say they will need almost $1 million to retire, but only 8% have a plan in place to achieve that goal

The vast majority of Canadians are utterly unprepared for retirement, according to a new CIBC poll that assesses the extent to which Canadians know about how much they need to save in order to have a comfortable retirement.

When it comes to millennials, only eight percent have a formal and detailed plan on how to go about saving for retirement. Yet, when surveyed, millennials said they will need almost $1 million in retirement savings — $250,000 more than the average Canadian says he or she will need.

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A whopping 90 percent of Canadians who are either not retired or semi-retired have no formal retirement plan in place that will give them the lifestyle they want. In fact, 53 percent aren’t sure if they are saving enough, and 37 percent either aren’t able to save or haven’t thought about retirement at all.

“Nobody teaches kids how to save. There’s no education on this. I’m not sure if parents even have conversations with their kids on savings,” laments Matt Ardrey, a wealth advisor at TriDelta Financial.

So how does one start saving a million bucks? The first step, according to Ardrey, is to pay yourself first. “Take some money out of your budget every month, even if it’s just $100 a month. It builds your discipline, and as your income grows, you’ll be able to put in more.”

Realistically though, $100 a month for 12 months and 35 years (assuming you start saving from age 30) will only give you a measly $42,000. Even with the power of compounding — assuming you’re not just stashing your savings in a generic savings account but putting it in a TFSA or RRSP account — you’ll end up with slightly under $120,000 by 65 (at a rate of return of five percent).

Considering that company pension plans are becoming increasingly rare and many young people are employed temporarily or on a contract basis, you’re then relying on Canada Pension Plan contributions to subsidize your retirement. That’s a rookie move — even if you work continuously from age 18 to 65, for most Canadians, the average CPP payment is a little over $640 a month. That’s not nearly enough to afford a comfortable retirement.

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But getting to a million dollars is far from impossible, says Jennifer Hubbard, Managing Director at CIBC Financial Planning and Advice. “Maybe you start by putting 10 percent of your monthly paycheck into an RRSP or TFSA account. The small salary you have when you start out working will likely grow in time, and so that 10 percent will grow as well.”

Hubbard believes that young people who have the discipline to save, will be well head of the curve. “I always say young people have the beauty of time, and they should take advantage of the power of compounding,” she told VICE Money.

Indeed, using this simple compound investment calculator, you’ll see that if you save just $885 a month over the period of 35 years, you’ll end up with $1,005,442 when you’re 65. You’re effectively just contributing $371,700, but at a five percent rate of return, the power of compounding adds another $633,742 to your retirement savings.

Saving almost $900 a month when you initially start working is close to impossible, especially considering the sky-high cost of living in Canada’s urban centres. It is close to impossible to get a one-bedroom apartment in Toronto for under $1600. The key then, is to consistently save, in any which way that you can, even if it means giving up that morning coffee or cutting down alcohol consumption and dining out. You might save $100 on a $40,000 salary for a few years, but $1,500 later on in life when your salary rises over time.

“My old school rule of thumb is picture what you want your retirement to look like,” Ardrey told VICE Money. “Can you survive on 90 percent of the income you receive now? That’s a great place to start to determine how much you need in your retirement years.”

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