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The Companion Advisor: General Interest
Start counting your paycheques

A Companion Advisor Article
Money Management Newsletter - May 1998

Have you ever thought about the number of paycheques you'll receive before you retire? If you haven't, here's a sobering thought: A 25-year-old who plans to retire at age 65 has 960 paydays left. A 45-year-old has only 480. Assuming that you will receive 24 paycheques a year for the rest of your working life, how many do you have left?

Now consider how much you save from each paycheque towards your retirement. For many Canadians, a paycheque barely stretches over the two-week pay period. The fact is, most of us have limited time and resources before we retire. But it's important to remember that we may live another 30 years after retirement. The challenge is to bridge the gap between how much we can put aside for retirement and how much we'll actually need.

There are three ways you can bridge the gap: by saving more, by working longer or by choosing growth investments. Saving more is a good idea, but it's not always possible, especially if you're paying a mortgage or raising children. Depending on your job, working after age 65 may not be possible. In any event, it's difficult to tell now how you'll feel about working when you're 65. And even if you do work longer, it's better to work by choice than because of financial need.

That leaves growth investments – putting at least some of your money in the stock market, where theirs potential for greater returns, returns that can outpace inflation.

Yet many people are intimidated by the complexities of the stock market. They are more comfortable with another, easier way to invest: equity mutual funds, which offer professional money management and diversification.

Historically, well-managed equity funds have outperformed other types of investments over the long term. In addition, a variety of mutual funds are available, giving you an opportunity to choose funds that match your risk tolerance and time horizon.

"In most cases people earn a finite number of paycheques," says Elizabeth Hoyle, vice-president of marketing at Trimark. "So, if saving more or working longer aren't options for you, you'll have to make your savings work harder. That means starting early with a regular investment program so your money has a longer time to grow. It also means looking at financial vehicles like equities and equity mutual funds because they offer the best opportunity for growth over time."

How Many Paycheques Do You Have Left?
Age	Years Before Retirement	Number of Cheques
25 30 35 40 45 50 55	40 35 30 25 20 15 10	960 840 720 600 480 360 240
Based on two paycheques per month

The earlier you invest in equity mutual funds, the more growth potential your money will have. For example, if at age 25 you invest $2,000 per year (at the beginning of each year) for 10 years and then stop investing, at 10 per cent return you'll have over $610,000 by age 65. But if you wait until you're 35 and invest $2,000 per year for the next 30 years, you'll have about $360,000. That’s a loss of $250,000.

By taking the time now to find the best long-term, consistent return, you can improve your financial future significantly. Even one percentage point can make a dramatic difference over time. If, at the beginning of each year, you place $5,000 in an investment that earns eight per cent over 30 years, rather than one that earns nine per cent, you lose out on over $131,000.

"There are three things you can do with your paycheque: spend it, lend it or invest it," says Hoyle. "Before you spend another paycheque, think about how many you have left."

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