Why You Should Start Saving for Retirement Now

Save and invest as early as you can to allow your investments to compound to an impressive size by the time you retire.

| More on:

Here’s a scenario about twins Joanne and Joe to illustrate why it’s critical to start saving and investing for retirement as early as you can.

From 25 to 35, Joanne was able to save and invest $6,000 at the beginning of each year for an 8% rate of return. After that, other obligations came in, and she couldn’t put more money into her long-term investment portfolio. When she was 35, her investments had grown to $93,872.92. Her investments continued to grow at 8% per year after that. She was able to retire with an impressive amount of $944,610.99 at age 65 — the typical retirement age.

Joe didn’t think about retirement until he was 40. He then saved and invested $6,000 per year for an 8% rate of return. At age 65, his retirement portfolio was only $473,726.49.

At retirement, Joanne’s wealth almost doubled Joe’s! Additionally, Joanne only put in a total of $60,000 of her savings during the 10-year period. In contrast, Joe saved a total of $150,000 over 25 years.

The above scenario assumes no commission-fee trading, and the investments were in a Tax-Free Savings Account (TFSA) so that no income taxes were paid.

Save as early as you can

I hope I’ve encouraged you to save as early as you can, even if it’s just putting away $100 a month in your TFSA. Your savings will add up, especially when you invest for a reasonable rate of return. The Canadian stock market, using iShares S&P/TSX 60 Index ETF as a proxy, returned 8.9% per year over the past 10 years. So, an 8% rate of return is very reasonable.

The earlier you put your money to work for a positive return, the longer your money can compound and build your wealth. According to the Rule of 72, investing for an 8% rate of return could double your money in nine years.

Where to invest for a +8% rate of return

An 8% rate of return is not an aggressive target when investing in stocks. In fact, many stable dividend stocks can deliver that kind of return, if not closer to 10%, in the long run. This means long-term investors can take low risks to generate satisfactory returns that result in a sizeable retirement fund.

For example, Royal Bank of Canada (TSX:RY)(NYSE:RY) stock delivered annualized returns of about 11.5% in the past decade. The Big Six Canadian banks operate in a oligopoly structure supported by a federally regulated environment. They take up about 90% of the country’s banking deposits.

Royal Bank is a leading Canadian bank that will grow its profits in the long run. Its yearly net income exceeds $16 billion. It shares 40-50% of its profits with shareholders each year in the form of quarterly dividends.

RBC stock appears to be fairly valued right now. So, it’s a good time to buy shares for a dividend yield of 4.1%. The bank stock targets an earnings-per-share growth rate of 7%. Therefore, an approximated long-term rate of return would be about 11%.

Savings, time, and return

Ultimately, how much you’ll have to enjoy for retirement depend on three factors:

  • How much you save regularly for long-term investment
  • The time you allow your investments to grow
  • The rate of return you achieve

The earlier you save, the better. The longer you allow your investments to grow, the more your money can compound. The higher the rate of return you achieve, the larger your retirement fund will be.

If you save and invest early on, you can park your money in low-risk, stable dividend stocks like RBC stock.

Should you invest $1,000 in Brookfield Property Partners right now?

Before you buy stock in Brookfield Property Partners, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Brookfield Property Partners wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

My Top 2 TSX Stocks to Buy Right Away for Long-Term Income

These two TSX stocks aren't only looking to climb over time, they also offer up strong dividends to boot!

Read more »

analyze data
Dividend Stocks

Invest $25,000 in This Dividend Stock for $985.78 in Annual Passive Income

If you're looking for some passive income to come your way, don't sit around. Invest here instead.

Read more »

A person looks at data on a screen
Dividend Stocks

Where Will Restaurant Brands Stock Be in 5 Years?

Restaurant Brands stock has delivered outsized gains to shareholders over the past decade. Is the TSX stock still a good…

Read more »

Dividend Stocks

1 Magnificent Canadian Stock Down 29% to Buy and Hold Forever

If you're looking for a value stock that's down but not out, this is the Canadian stock to buy.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy in May 2025

These dividend stocks were just bumped up by analysts, making them great buys on the TSX today.

Read more »

hand stacking money coins
Dividend Stocks

Where to Invest $10,500 in the TSX Today

These discounted stocks deserve to be on your radar right now.

Read more »

Canadian flag
Dividend Stocks

The Top TSX Stock to Buy Now as Canadians Shift Cash Back Home

This top stock is one investors should no longer ignore, and now is the time to pounce.

Read more »

Asset Management
Dividend Stocks

Where Will Magna International Stock Be in 4 Years?

Down almost 60% from all-time highs, Magna stock trades at a cheap valuation right now. Is the TSX stock a…

Read more »