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How To Save $1 Million For Retirement

Katherine Martin • August 29, 2016

Starting to save early for retirement is extremely beneficial in the long run, especially if you have the dream of retiring with $1 million as so many Canadians do. It’s not an easy feat, but for most Canadians, retiring with $1 million is a realistic goal. You most likely won’t be flying private or have a butler, but retiring with $1 million means you can live comfortably (especially if you follow the 4% rule, which suggests withdrawing no more than 4% of your nest egg each year to maintain the principle, if you factor in interest rates and inflation). 

So how can you actually save a million dollars? Discipline and planning will help you pave the way to seven figures by retirement. Here are 8 tips to help get you there:  

1. Save early

Let’s say you’re 25, you have no real savings, your annual earned income is $40,000, and you plan to retire in 40 years. In order to retire with $1 million, you must save $502.14 each month for 40 years at a 6% rate of return.

Now let’s say you wait until you’re 45 to start saving (maybe paying off debt has held you back), and at this point you have no real savings, your annual earned income is $72,000, and you plan to retire in 20 years. In order to retire with $1 million, you must save $2164.31 each month at a 6% rate of return. 

What to take away from this: It’s never too late to start saving, however, building wealth later in life or in the last decade before you retire can be really hard. To live well when you’re old means you should start to save while you’re young. Most millionaires in retirement that I know developed good spending, saving, and investing habits when they were young. Also, starting earlier gives your money more time to grow through compounding interest. Saving thousands a month right now may seem (or be) impossible, but you’re better tp start saving something.

2. Pay yourself regularly

Setting up automatic withdrawals (or “payments to yourself” as I like to look at them) from your checking account to your savings (or RRSP) is a great way to build wealth. It may be an adjustment at first (since you’re used to having that “extra” income), but you’ll get used to it pretty fast. You’ll also feel great knowing you haven’t dipped into cash you “should be” saving, and soon enough you won’t even miss the money.

What to take away from this: You’re doing something really good for yourself (and future you) by setting up automatic payments ! Saving should be habitual and easy, so don’t make it painful or harder than it has to be.

3. Live within your means

This one shouldn’t come as a surprise to you! I’ve talked about living within your means before, and how you should avoid the pressure to spend and keeping up with the Joneses.  

To know if you’re living above your means, answer this one question: do you carry a credit card balance that you’re having trouble paying off in full? If you answered yes, please read on. 

You don’t need the biggest home or newest car (and anyone who makes you feel that way need not be in your life). Simply establish a comfortable standard of living you can maintain. Save at least 10% of your paycheque and save your bonuses (and raises) instead of spending them. If you live within your means you won’t need to dip into your reserve funds, and you can actually watch your savings grow. 

What to take away from this: Earn more money, or spend less of what you earn (the latter is much easier to do). 

4. Manage debt

Credit cards, lines of credit, loans, and any other debt you can think of should be managed and paid off ASAP, otherwise you risk throwing away thousands of dollars in interest each year. Even if you have to stop saving for a year or two, do it! 

Oh, and maybe before you lay down the plastic again, ask yourself if you have enough cash in your checking account to cover the purchase. If the answer is no, ask yourself why you’re spending money you don’t have. 

What to take away from this: Pay off your debt as quickly as possible (high interest debt first) and be responsible with your credit card(s).

5. Don’t splurge too soon

While a home may appreciate in value and help you eventually build wealth, a car depreciates the second you take it out of the lot, so consider where you’re making your big purchases. If you can afford the monthly payments on your leased Audi, great! But, if your monthly car payments are higher than your monthly RRSP contributions (or other savings), you need to reassess what you’re doing. 

A new job or pay increase can be exciting and trigger a desire to upgrade, but rather than going out and buying the most expensive sports car in the lot, or the biggest house on the block (hello, house poor!) consider an option that’s somewhere between what you have now and what your dream is. 

What to take away from this: Splurging too soon may throw you into debt you don’t want to be in. Also, buying top-of-the-line items right away leaves little to look forward to the next time you make a similar purchase. Spend your money thoughtfully. 

6. Be frugal

Being frugal doesn’t mean you’re cheap – there is a difference! Prioritize your spending so you can have more of the things or experiences you really want. Let’s say it’s your partner’s birthday. A frugal person would probably have made dinner reservations, since it’s an occasion to celebrate. A cheap person won’t make reservations and may not even make dinner at home.  

Indulging is okay; we all need it at times. But affordable indulgences are what you should be after (example: barbecue a surf n’ turf dinner at home instead of going to a pricey steakhouse). Make sure you’re spending within the lines.

What to take away from this : Understand that paying more doesn’t necessarily mean you’re getting better value. 

7. Invest  

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen

According to a study by Statistics Canada , 31% of those surveyed betweem ages 45 and 60 said their financial preparations for retirement were insufficient. Further, a study by RBC revealed 56% of non-retired Canadians were worried they wouldn’t be able to enjoy the life in which they are currently accustomed to. 

Investing is one of the most powerful tools to grow your wealth. Putting all your savings into a bank account that returns 1% is not the way to grow your wealth quickly. Investing your money provides larger returns and means you could have multiple income sources, helping you rest easier in retirement. 

Make sure to watch out for high and hidden fees , as they can eat away at your investments’ potential growth. Plenty of low-cost solutions for investors are popping up, and fee based advisors, like some robo-advisors , can offer unbiased investment advice, as well as help you set realistic financial goals that match your life goals. 

What to take away from this: Put your money to work for you , and you eventually won’t have to work so hard for it. 

8. Re-evaluate

Life changes, so don’t expect everything to go according to plan. It’s easy to say you’ll save 10% or 15% of each paycheque, but the reality is, it’s not so easy! 

Inflation, income changes, emergencies, employment changes, life expectancy, and priorities ( ever had a baby? It’s expensive, and wonderful!) in general can affect our financial plans. When it comes to saving, it’s always better to save more than to be sorry you didn’t.

What to take away from this: Stick to the fundamentals, and adapt as your life changes. 

Retiring with $1 million doesn’t have to be a dream if you plan for it. Use my tips as guidance, and you could make your dream a reality. 

 

Try out this Million Dollar Savings Calculator to see how much you should start saving each month to retire as a millionaire.

 

This article was written by Randy Cass, and was originally published here on June 8, 2016.

Katherine Martin


Origin Mortgages

Phone: 1-604-454-0843
Email: kmartin@planmymortgage.ca
Fax: 1-604-454-0842


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Improving Your Credit Score

By Katherine Martin • February 19, 2025
Your credit score and how you manage credit are huge factors in qualifying for a mortgage. If you want the best interest rates and mortgage products available on the market, you want a high credit score. Here are a few things you can do to improve your credit score. Make all your payments on time. Making your payments on time is so important; in fact, it might just be the most important factor in managing your credit. Here's how credit works. When you borrow money from a lender, you agree to make payments with interest on a set schedule until the debt is repaid in full. Good credit is established and maintained by making your payments on time. However, If you break the terms of that schedule by not making your payments, the lender will report the missed payments to the credit reporting agencies, and your credit score suffers. It’s that simple. The more payments you miss, the lower your score will be. If you fail to make payments for over 120 days, the lender will most likely send your debt to be recovered by a collection agency. Collections stay on your report for a long time. So the moment you realize you have missed a payment or as soon as you have the money for it, make the payment. If something prevents you from making a payment, consider contacting the lender directly to let them know what happened and work out an arrangement to make the payment as soon as possible. It's good to note that lenders only report late payments after a payment is 30 days late. If you miss a payment on a Friday and catch it the following Monday, you won't have anything to worry about - except maybe an NSF fee. Now, just because payments don't report until being 30 days late, don’t get comfortable with making late payments; the best advice is to pay your debts on time, as agreed. Stop acquiring new credit. If you already have at least two different trade lines, you shouldn’t acquire new trade lines just for the sake of it. Of course, if you need to borrow money, like to purchase a vehicle to commute to work, go ahead and apply. Just remember: having more credit available to you doesn’t really help your credit score. In fact, each time a potential lender looks at your credit report, it may lower your credit score a little bit. With that said, if you already have two different trade lines and your lender offers you an increase on your limit, take it. A credit card with a $10k limit is better for you than a credit card with a $2k limit because how much you spend compared to your credit card's limit impacts your credit score. This leads us directly into the next point. Keep a reasonable balance. The more credit you use compared to the limit you have, the less creditworthy you appear. It’s better to carry a reasonable balance (15-25% of the card’s limit) and pay it off each month than to max out your credit cards and just make the minimum payments. If you have to spend more than 25% of your card limit, try to remain under 60%. That shows good utilization. Paying down your credit cards every month and carrying a zero balance will undoubtedly improve your credit score. Check your credit report regularly. Did you know that roughly 20% of credit reports have misinformation on them? Mistakes happen all the time. Lenders misreport information, or people with the same names get merged reports. Any number of things could be inaccurate without you knowing about it. You might even have become a victim of fraud or identity theft. By checking your credit regularly, you can stay on top of everything and correct any errors promptly. Both of Canada's credit reporting agencies, Equifax and Transunion, have programs that, for a small fee, will monitor and update you on any changes made to your credit report. Handle collections immediately. When checking your credit report for accuracy, if you happen to find a collection has been registered against you, deal with it immediately. It could be a closed-out cell phone account with a small balance owing, a final utility bill that got missed, unpaid parking tickets, wage garnishments, or spousal support payments. Regardless of what it is, it will harm your credit score if it's registered on your credit report. The best plan of action is to handle any collections or delinquent accounts as soon as possible. Use your credit card. If you have acquired credit cards to build your credit score, but you rarely use them, there is a chance the lender might not report your usage, and that won’t help your credit score. You'll want to make sure that you use your credit at least once every three months. Many people find success using their credit cards for gas and groceries and paying off the outstanding balance each month. There you have it. Regardless of what your credit looks like now, you will continue to increase your credit score if you follow the points outlined above. If you're looking to buy a property and you’d like to work through your credit report in detail, let’s put together a plan to get you qualified for a mortgage. Get in touch anytime; it would be a pleasure to work with you!

How To Establish New Credit

By Katherine Martin • February 12, 2025
If you’re new to managing personal finance and you want to learn about credit, you’ve come to the right place. Establishing new credit is a bit of a catch-22. To build a credit history, you need credit. But it’s hard to get credit without having a credit history. So, where do you start? Well, the first thing you should know is that building credit takes time. It’s not something that happens overnight. If you’re looking to secure mortgage financing, you will want to have a minimum of two trade lines (credit cards, loans, or lines of credit) with a minimum limit of $2500, reporting for at least two years. If you don’t have any credit yet, the best time to get started is right now. However, that may be difficult because, as we've already identified, without a credit history, most lenders won’t feel confident about taking a chance on you. What’s the solution? Consider a secured credit card. With a secured credit card, you make a deposit upfront that matches the amount you want to borrow. A reasonable amount would be $1000 deposited on a single secured credit card. You then use your secured credit card to make household purchases and regular utility payments, paying off the total balance each month. If you default on the money borrowed for whatever reason, the lender will retain the money you put up as collateral. When looking for a secured credit card, be sure to ask whether they report to the two nationwide credit bureaus, Equifax and TransUnion. If the credit card company doesn't report, the credit card account will be useless for your purposes; move on until you find a company that reports to both credit bureaus. Once your secured credit card begins reporting to the credit bureaus, you begin to have a credit score; usually, this takes about three months. Now you can start to seek out a second trade line in the form of an unsecured credit card. Don’t forget to ensure that this card reports to both of the credit reporting agencies. Another option at this point could be a car loan. From here, you simply want to make all your payments on time! But what happens if you’re looking to secure mortgage financing before you have a fully established credit report? Well, if you have someone who would consider co-signing, you can certainly go that route. The mortgage application will depend on their income and credit report, but your name will be on the mortgage. Hopefully, when the mortgage is up for renewal, you’ll have the established credit required to remove them from the mortgage and qualify on your own. Although establishing credit takes a minimum of two years, it really begins with putting together a plan. If you’d like to discuss anything credit or mortgage-related, please get in touch!
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