A mother and daughter learn the difference that time makes when you invest regularly
Mary, 50, works as an accountant and has a 22-year-old daughter, Susan, who just started working full-time. Although a generation apart, both women want to reach retirement with adequate savings. Here is how they went about it:
Deciding to save
When Mary was 35 years old, she enrolled in her employer's retirement savings plan. She began contributing $400 a month to her account. Seeing her own account grow over time, Mary has encouraged her daughter to start saving early. Susan contributes $200 a month to her company-sponsored RRSP.
Putting time to work
Despite her lower monthly contribution, Susan has the advantage of compound investing because she has more time for her earnings to grow. The chart below compares the results of her account at age 65 with her mother's, assuming both earn a constant 6% rate of return and continue their current monthly contributions, deposited at the beginning of each month.
Growth through compounding
When Mary and Susan each turn 65, the value of their accounts will have grown considerably. Mary will have contributed more, but Susan's earnings will be greater due to compounding.