Apr 28: BEST FROM THE BLOGOSPHERE

April 28, 2025

Saving a dime from every dollar is still good advice: The Motley Fool

Our late Uncle Joe sat us down, years ago, to go over the retirement plans we had drawn up for the missus, his niece.

In that long conversation about retirement savings, avoiding debt, and living within one’s means, he told us his main strategy was to put away 10 cents of every dollar he earned. He was still doing this into his late 80s.

Is this a good strategy? The folks at The Motley Fool sure seem to think so.

“Estimating your retirement needs can be complicated, so it’s not surprising that people look for mental shortcuts to make it easier. One of these shortcuts says you should save 10 per cent of your annual income for retirement,” their article begins.

The article says that the average U.S. full-time worker earns about $62,000 US, or just under $90,000 Canadian.

“Saving 10 per cent would look like saving $6,200 annually, or about $517 per month. How much this is worth by your retirement depends on how long you save and your average annual rate of return,” the article explains.

If you were to save that $517 each month at a six per cent interest rate, the article suggests, you’d have $34,973 after five years, $81,774 after 10, $340,379 after 25 and $960,143 after 40 years. That’s about $1.3 million Canadian.

“There’s a lot of variance here. A person able to dedicate $517 per month toward retirement from their earliest days in the workforce who earns a high annual rate of return on their savings could wind up with a substantial sum for retirement. But this isn’t the reality for a lot of people,” the article explains.

Younger people, the article explains, are usually struggling with student debt and living costs while getting their first paycheque, likely at an entry-level job. For those starting late, “we can see that it’s much more difficult to retire on the nest egg they get from saving 10 per cent of their income per year.”

If you are starting late, the article suggests, maybe you should be aiming at saving 15 per cent of your income each year.

“If you can’t find a savings amount that works for you right now, you may have to consider delaying your retirement date. This gives you additional time to save while also reducing the length and cost of your retirement,” the article explains.

“Once you’ve settled on a plan that works for you, do your best to stick to it. Automate your retirement contributions where you can so you don’t forget them and remember to increase your retirement deferrals whenever you get a raise,” the article concludes.

It can seem impossible to get started on a “pay yourself first” strategy. A couple of tricks we learned along the way included the concept of banking your raise. Say you are making so much a year, and you are managing the bills, and then get a three per cent raise. Put the difference between your old paycheque and the new one in the bank and keep going as before.

The missus always has banked any money she gets from dental or vision claims, treating it like it was a small lottery jackpot.

If 10 per cent is too big an amount, try something less. Even one per cent directed to savings will add up over time. Increase that one per cent when you can.

If you are a member of the Saskatchewan Pension Plan and want to forecast what your savings might look like over time, check out SPP’s Wealth Calculator. This handy tool shows what you will get if you keep contributing at the same rate – and you can see what would happen if you bumped things up a bit.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

The Motley Fool

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