Because of inflation, according to the press release, that number is 20% higher than it was in 2020, when it was $1.4 million. I wrote my initial take on the poll on my own site, citing the Canadian Press article in the Financial Post as my main source. I wrote that you’d have to put away $42,400 every year in a registered retirement savings plan (RRSP) for 40 years (between the ages of 25 and 65) to reach $1.7 million. That’s more than double what even top earners are allowed to contribute. But, as you can see below, if you start saving in an RRSP early enough, you won’t need to save nearly that much each year.
How to save $1.7 million for retirement
Certainly, I sympathize with the Canadian millennials or gen Zers feeling discouraged by such a huge number. At 4% 4% rate of return (ROR) a year, $17,000 a year in RRSP contributions for over 40 years should get you to $1.7 million. And, as I wrote on my blog, my quick-and-dirty take assumed a 4% ROR, either from fixed income (such as guaranteed investment certificates, a.k.a. GICs) or Canadian dividend-paying stocks. Those assumptions may seem unduly conservative.
To follow up for MoneySense, I reached out to several experts to put more flesh on my guesstimates. Turns out, I was on the money, according to Erin Allen, vice president of online ETF distribution for BMO ETFs.
“I would agree with your conservative 4% ROR on the investment portfolio, and that would likely be how we would frame it as well,” says Allen.
Again, with an annual 4% ROR, $17,000 annual RRSP contributions should get you to $1.7 million over 40 years. But if you invest in your 20s, you won’t need to save anywhere close to that much because of compounded investment returns that are tax-deferred inside an RRSP. Because of the added value of time in the invested money, even the modest 4% compounded annual investment returns will, over the course of 40 years, get you to the retiree’s promised land.
According to Allen’s estimates, using calculator.net, if you can annually earn a conservative 4%, you’d need to contribute $17,900 (rounded) at the end of each year to reach $1.7 million by end of year 40 of investing. That breaks down to $716,000 in total contributions, and another $984,400 in interest payments.
If you end up earning more than 4%, you could contribute even less money to your RRSP. At 5% a year, you’d need to annually contribute only $14,073 (rounded) for 40 years to reach $1.7 million. That breaks down to $562,915 in total contributions and $1,137,085 earned with interest.
Matthew Ardrey, a wealth advisor for TriDelta Financial in Toronto, says his client projections assume 5% return net of fees with 3% inflation. He uses a portfolio of stocks, bonds and alternatives. “I try to lean towards being conservative. When I get the Morningstar numbers from the financial planning program, [it] gives a balanced portfolio a return of 4.55% gross of fees,” he says.