The earlier you invest in your RRSP, the better

 

Start early to leverage the power of compounding

The sooner you make it a priority to invest for your retirement goals, the better.

When time is on your side, it's a huge ally. The earlier you start, the more you benefit from the power of compounding. Compounding occurs when the returns that your investments earn begin to generate a return.

In an RRSP, compounding is unhindered. You can reinvest your gains, including your dividend and interest income, without paying any tax, while the funds remain within the account.

The chart below shows the incredible impact that compounding has on your RRSP savings, and why it's better to start investing as early as you can.

 

Starting at different ages, monthly investments required to reach $500,000 by age 65

  Start at age 25 Start at age 35 Start at age 45
Monthly investments $338 $614 $1,233
Value of age 65 $501,093 $500,640 $500,356
Portion from compound growth $338,853 $279,600 $204,436

Source: Credential Qtrade Securities Inc. Scenarios assume an average 5% annual rate of return.

Invest regularly

To leverage the power of compounding, it's a good idea to hardwire the habit of saving and investing. Set up a regular contribution plan to move a set amount of money automatically every month from your banking account to your RRSP and invest that money to get it working on your behalf. You'll quickly adjust your budget and your lifestyle around that monthly commitment, and you'll avoid the stress of coming up with a single lump-sum contribution at the RRSP deadline.

VirtualWealth accounts make it easy for you to set up automatic contributions, helping you grow your savings and take advantage of compounding.