Saving a Million Bucks; is it even Possible?

A recent TD Canada Trust study released results of a poll of young Canadians aged 18-34 stating most believe their best shot at having a million dollars by the time they retire is by winning the lottery. TD on the other hand suggests the goal, though it may sound impossible at first, is very attainable if you have the time frame and compound interest on your side. TD suggests saving $100 per month at the age of 25 into a tax deferral vehicle like an RRSP or TFSA; increase the amount to $250 at age 30; $500 at 35; and $750 at 40; $1000 at age 50... retiring at 65, you should have saved a million bucks assuming an annual yield of 6.8% compounded monthly in 40 years.

I never did give myself a concrete goal like a million dollars by retirement before, but the study did intrigue me....Could I save a million dollars? I ponder if this is even possible giving the fact that life just gets in the way: markets crash, babies are born, kids need dental work, cars break down, homes need new roofing and furnaces, another baby is on the way, people lose their jobs... while saving $100 or $250 isn't a problem for most people but considering most are swimming in debt as the Vanier Institute opines: people are spending $1.50 for every $1 earned after taxes; hence how is it possible to save $750- $1000 per month for most of us? Also consider this, a 2009 Canadian Payroll Association study found 2/3 of all Canadians would find themselves in trouble if they lost their job and missed their paycheque by one week.

Now, how about a person like myself? I try to live frugally but I don't have the 40 year time frame anymore to save that kind of money as TD suggests. People like me spent the last 10 years trying to tackle our debt levels and mortgage; in fact, most people my age group are still within 10-15 years away from paying their mortgage off nevermind paying off their consumer debt. So is it still possible to save a million dollars in less than 20 years?

And, how easy is it to find an investment to earn one a return of 6.8% annually, compounded monthly? I asked this question to a professional financial advisor and she said it wasn't impossible but isn't advisable as I would have to take on quite the risky portfolio to earn something that high of a yield.

A recent Moneysense article claims this is not an impossibility and can be achieved with a balanced portfolio of stocks and bonds. Another Moneysense article points out two possible scenarios to achieving the million dollar goal: one with annualized returns of 6% and ultra-conservative $3.5% using up all one's RRSP contribution room.

Yes, considering average returns of the general stock market has been 9%-11% is how Moneysense based their opinion but, the authors also tend to forget one starting out saving and investing does not do this for free.. most banking institutions charge annual fees and transaction fees as do mutual funds companies; another part of life that gets in the way. In addition, how does one rebalance and reinvest their returns into their portfolio every month in order to capitalize on the monthly compounding that is needed without incurring large transaction costs?

What I do agree with TD and Moneysense is you do need time and yield, and the more you can save the better; the power of compound interest will take care of the rest. The more you save, the more you can invest; the more you invest the faster you can achieve your million dollar goal.

The chart below shows how many years it would take to reach a cool million. The higher the rate of return, the higher amount of risk you would have to take, but obviously the faster it would take. But if you can SAVE more per month, earning a lower yield in a safer investment can get you to your million dollar goal in less time than earning a higher rate of return.

Years To Reach One Million Dollars

Monthly Savings2%4%6%8%10%12%14%16%

Reading from the chart, it would take one 51 years to acquire a million dollars if they saved $50 per month and earned an annual return of 10%. For me, if I was starting out now, and have 17 years to retire, I could save $1000 per month but would need a 16% annual yield; what is interesting is if I upped my savings to $4000 per month and stayed with a more conservative portfolio giving me a return of only 2%, I could still achieve my million dollar goal in 17 years! The key here for people like myself who don't have the time frame is being able to SAVE MORE.

At 25, I felt I had all the time in the world to save; at 35, I thought I was easily on my way being better off than most of my peers paying off my long term debt; when I hit 40, I realized I only had 18 years left to achieve my retirement goals (I intend to retire at 58 not 65). And, with my recent look at our household monthly bills, I found that my mortgage payments I once had has been totally swallowed up by the increases on our utility bills and not going towards savings at all as I once thought. So at 41, what do I do now?

I DO believe saving a million dollars IS possible but not as easy nor is it on autopilot as TD Canada Trust or Moneysense suggests it is. It takes hard work and discipline and commitment. And it takes money. How much? An interesting article 2 years ago by Wall Street journal writer, Jonathan Clements, suggests there is a certain threshold one needs to attain where the driver of most portfolio growth comes from investment returns instead of savings...

"This is the snowball down the mountain that turns into an avalanche. This 'certain level of assets' is often called critical mass--the point where you can't stop the money from growing. The growth comes from the compounding as the investments pay off" ... - Charles Farrell, Northstar Investment Advisors.

This amount is approximately double your pretax annual income assuming you are saving 12% of your gross income and getting an average annual return near 6%. In short, money makes more money. I reached that threshold this year... will I get to a million? ...we'll see how it goes....

But who says I need a million? To be continued....

What are you doing with your tax refund..?

It's that time of year again... tax season... every year at the end of February, Canadians become giddy as they receive their T4s in the mail... chatter of vacation plans, new electronic gadgets, and paying down debt has literally taken over peoples' conversations as of late... sure beats fretting over Libya and rising gas prices at the pump...

Last weekend I got an early jump by downloading the necessary tax software and got my parents' returns out of the way. Curious as to see if I was going to get a refund this year, I decided to at least enter any employment income data I had and go over my stock trading summaries as that task annually takes the most time when doing my returns....

So far, looking good...a refund of $3615.44. Not all of my forms have been received yet as corporations get until March 31st to send that information off; so take away a bit more for dividend income, trust unit payouts, and interest income of $1696.13 for last year so the refund will be closer to the amount of about $3400... less than half of what my refund was last year. But, considering 2010 was another year of heavy trading to try to recoup those portfolio losses from the market meltdown of 2008 and I don't believe in deducting extra taxes off my weekly paycheques, I am pleasantly surprised I am getting a refund at all this year.

This year I claimed the usual dependants of a stay-at-home wife and 3 kids, bank fees & safety deposit box fees, donations to the Breast Cancer Foundation and University Hospital Foundation; union dues, childcare (play-school fees), child fitness credits, RRSP contributions of only $5300 (max), and any Net Capital losses from previous years.

Ideas of What to do with your tax refund:

1. Emergency fund: too many people don't have one..they live cheque to cheque; payday to payday; consider this first... they say 6 months of bills is a good goal to have for an emergency fund; give yourself a small one to start of $5000 to start and stick it into a high-interest savings account. If you already have one, consider adding to it...things have gotten a lot more expensive these days.

2. pay down your debt: credit cards, auto loans, student loans... saving $1000 means nothing if you got $2000 in credit card debt.

3. Invest in yourself: take a course..buy personal finance or investment books... learning more is always a good investment.

4. Invest in your kids... throw that refund into their RESPs... instant 20% return.

5. Contribute to your RRSP or TFSA. Get started on next year's refund by contributing to your RRSP; a TFSA is a great way to invest or use as a emergency fund.

6. Vacation fund: don't you hate going on vacation and coming back home to all the bills; most people book and go on vacation and play catch up later...think about pre-paying for your vacay for a change...

7. Buy an iPad 2... you may not need it but you want it. You worked this hard all year...get something to make it feel worthwhile...

What I'm doing with my refund:

This year I plan to use my tax refund and go party with Charlie Sheen at the Spearmint Rhino! But, I don't think I have enough this year.... especially if Chuck trashes the hotel room again....

Or I could just do the usual....stick it into a high interest savings account to pay my monthly auto insurance premiums and at the end of the year, top off any RRSP contribution room for 2011; and at the beginning of 2012, max out the RESP and TFSAs for the 2012 year if I cannot save up the funds from my job.



My Pricebook: Edmonton Grocery Comparison; So Does Cheapwad Tuesdays Really Save You Money?

On Feb. 21st, I made up a comparison of a typical grocery list I would have in my own shopping cart on any given weekend and compared prices across west Edmonton area stores. As Max's Satanove's Food basket has shown along with CTV's monthly Grocery comparison, Superstore week to week continues to beat out its competitors in total price per unit. In my comparison, I added Costco and Walmart to the comparison and found that Costco's prices are on par and did beat Superstore for prices on that given weekend.

This past Tuesday, I wanted to see if going to the Customer Appreciation day (typically the first tuesday of every month for Save-On Foods, Sobey's, and Safeway ) would actually save a shopper more money than normal weekend savings. I compared the same grocery list with the one I created on Family Day weekend and compared it to our weekly el cheapo winners Costco and Superstore.

I've also added The Real Canadian Wholesale into the comparison; Lowblaw's answer to Costco to see if there were any real savings going there too for our weekly groceries.

Also in the mix is Loblaw's No Frills Supermarket; there's only one location in Edmonton and one in Fort Saskatchewan and Leduc. I wanted to see if it was worthwhile to made the drive out of my day to save a few more bucks considering food in general is skyrocketing these days.

Our cart would cost $206.10 on March 1st taking advantage of Save-On's 15% off Tuesday compared to $250.23 on Family Day weekend 2 weeks earlier. As shown on my chart above, for the same grocery cart, going on 15% off Tuesday at Save-On Foods, would indeed save you money on a typical Save-On Foods weekend outing but still does not save one as much as Superstore's or Costco's regular savings. Some separate items were cheaper such as lean ground beef and a 24 cube of Pepsi but items such as meat were more expensive even with the 15% discount added.

Going to the Real Canadian Wholesale came out cheaper than Save-On Foods on their Customer Appreciation Tuesday too; it was also cheaper than a regular shopping stint at Sobey's, Safeway, and Walmart costing $216.80 for our shopping cart. Some things again were very cheap at the Wholesale such as lean ground beef, bananas, and cereal. But the trouble with going there is often you have to buy large quantities like 6 or more to get the cheapest price; but if you ever need a 50kg bag of sugar or a 4gallon drum of pickles, the Real Canadian Wholesale is for you! Remember though, cash or debit only; no credits cards accepted.

No Frills was also comparable in price to Superstore and Costco. In fact, if you take away the bulk buying of Claritin and Advil from the list, No Frills would be our clear winner. But is it worth the drive? Not really. Plus, the clientele is pretty well... worse than Walmart if you know what I mean. I have a friend who shops there regularly because he lives closeby and while there are some great deals, a lot of items are picked through or sold out; in addition the stories about the people who shop there are second to none: He claims he has never had anyone crash into him with another shopping cart at any other supermarket but at No Frills, it's a regular occurrence; plus don't walk too far away from your cart or you'll find the people there will pick through your cart and put items in their shopping carts!

This weekend's deals (there are a few items worth going out of your way to pick up..):

Save-On Foods: Lean ground beef- 2.2kg chub for $10; strawberries 2lb for $3.89; chicken thighs w/skin 2.1kg for $10; chicken legs w/ back attached $3.28/ kg; Coke or Pepsi 12 x 355mL cans- 2 for $9; pork side ribs- $2.84/kg

Superstore: Free chicken breast 4kg box with $250 purchase; T-Bone steaks- $4.97/lb; navel oranges- 0.56/ lb.

Sobey's/ IGA: T-bone steaks- $4.99/ lb

Safeway: 100 bonus airmiles with $100 purchase; Lay's potato chips- 4 for $10; Purex bathroom tissue 15 dbl roll pack- $5.99 ea; Kellogg's Jumbo Cereal- $6.99 ea.

Costco: weekly coupon here.

No Frills: Chicken Drumsticks or thighs- $4.12 per kg; Split chicken wings- $7.69/kg; Kellogg's cereals. assorted varieties, Jumbo size- $4.99 each.