Generation Y: Invest early for retirement

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Post-secondary students have an opportunity to reap the greatest investment growth (Photo Credit: flickr/Anita Hart)

Tynan Stevens is one of many young adults who have been encouraged by their parents to start financial investments for retirement as early as possible.  

"Definitely my parents were a major motivator. I probably would never have spontaneously thought to start early," Stevens said. "They not only tried to teach me how to save money from an early age, but I seem to recall that there was an explicit conversation with my mother in which she suggested that I start investing when I started my master's degree."

Planning for the future

The idea of retirement is an obscure thought for many university students.

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Cartoon: flickr/Frits Ahlefeldt-Laurvig;HikingArtist.com

Landing a job after post-secondary education usually means wanting to splurge on vacations, a new wardrobe, a new car or an upgraded apartment.

The thought of preparing an investment portfolio for retirement is not likely to be on the minds of the almost seven million Canadians identified as being part of Generation Y (those born between 1980 and 1995, according to Statistics Canada).

Grant Rust is a certified financial planner, and he suggests that planning now for the future is the best strategy.

"The sooner the better.  With the average person working from age 20 to 65, that gives the individual 45 years to invest which will not strap them financially if they do a monthly contribution to an investment plan," he said.

Post-secondary students have an opportunity to reap the greatest investment growth by making small deposits in their twenties, Rust explains.

"Take a $1000 initial investment with $100 deposited monthly, with an annual indexing of three per cent.  If you were to average a rate of return on the investment of eight per cent annually it would grow to $736,000 when the individual gets to age 65."

Investing realistically

Students may question the practicality of such an investment, when they have many expenses related to starting careers and families.  But Stevens, a 26-years-old Dalhousie PhD student in medical physics, is like all students who have other expenses to account for.

"I factored that in when I started my investment plan," he said. "I like to have some disposable income, so I kept my monthly investments to a minimum, so that I can maintain flexibility with the money I do have."

According to Statistics Canada, in 2009 only 39.2 per cent of paid Canadian workers had a company-sponsored pension plan as part of their compensation, and in 2010, 11.5 million Canadians did not have company pension plans.

This means that a substantial number of newly employed Canadians are required to prepare their own financial investment plans for retirement, as it is impossible to foresee future employment as it relates to registered pension plans.

Making the proper investment decisions depends on personal income and expectations.

"Investing in a well balanced fund with income yields from dividends, bonds and income trusts will give the individual a good long term investment plan realizing eight per cent annually with less risk," Rust explains. " If the individual really understands what risk is, and what funds are high risk than 10 to 20 per cent could be invested into the high-risk funds."

Stevens doesn't have his long-term investment plans mapped out in full, but he is pleased that he is off to an early start.

"Even if your initial investments are small, it can set you up for a comfortable source of funds when you are older," he said.

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