A question with no single answer is how much you should invest for retirement. The answer to this depends on how much you earn today and what is your standard of living. The Canada Revenue Agency (CRA) deducts 11.9% from your gross income towards the Canada Pension Plan (CPP) contribution for up to 40 years. Despite this, the CPP payout only covers a third of your average salary. Hence, you must pay off your mortgages before you retire, as they make up for 30% of your income.
Calculating the money you need to retire
If you don’t have big monthly debt payments, you will need a 25-30% lesser amount at retirement. Assuming you have no debt and dependents, even then, a third of your average salary is not enough for a comfortable retirement. You need at least 60% of your average salary, which even grows with inflation.
For instance, if you were to retire this year and your average salary is $5,000 per month, a 60% salary means you need at least $3,000 per month. If you get an average CPP of $760.7 per month, then you need $2,239 more per month to make up for 60% of your average salary. Assuming a 30-year retirement period, you need $1.2 million to fill this $2,239 income gap after adding annual inflation of 3%.
It will be safe to say that an average Canadian needs at least $1 million in their retirement fund.
How much should you invest to retire a millionaire?
It depends on your risk appetite, investment amount, and investment horizon. If you have 30 years, you can invest $6,000 per year in a portfolio, giving a 10% average annual return and accumulating closer to $989,000 in the 30th year. The lesser your investment term, the higher your investment amount.
| Year | Investment | Investment Return @ 10% | Total Amount |
| 2023 | $6,000.00 | $6,000.0 | |
| 2024 | $6,000.00 | $600.00 | $12,600.0 |
| 2025 | $6,000.00 | $1,260.00 | $19,860.0 |
| 2026 | $6,000.00 | $1,986.00 | $27,846.0 |
| 2027 | $6,000.00 | $2,784.60 | $36,630.6 |
| 2051 | $6,000.00 | $80,525.96 | $891,785.6 |
| 2052 | $6,000.00 | $89,178.56 | $986,964.1 |
You can even consider increasing your investment every year by 10% and accumulating $1.1 million in 23 years at a 10% average investment return. Another technique is to invest a larger amount in the bear market and accelerate your investment return.
Three stocks to accelerate your investment return
The current bear momentum has created an opportune time to buy fundamentally strong stocks at the dip and boost your long-term returns.
Constellation Software (TSX:CSU) is an umbrella company that acquires small- and medium-sized vertical-specific software companies that enjoy stable free cash flows. It is like buying a dividend stock. Constellation funds its future acquisitions from the cash flows earned from previous acquisitions. As you can see, this stock gives less dividend of $5.43 for a $2,753 stock because it reinvests most of the cash flow on new acquisitions. Hence, Constellation has a lower debt of $2.74 billion, which is equivalent to two years of its operating cash flow.
The company has a robust growth model and is in a long-term uptrend. It doubled from $1,000 to $2,000 in two-and-a-half years of the tech bubble. Although such strong growth is unlikely to happen in a short time, it is a stock that can give you more than a 10% average annual return for the next decade.
Enbridge stock
Enbridge (TSX: ENB) stock is at a sweet spot and gradually recovering from its 52-week dip. Investing now can help you lock in an 8% dividend yield. But how will the 8% return make up for the minimum 10% return required for your retirement portfolio? Enbridge has been growing its dividend at an average annual rate of 10% in the last 28 years. Although the growth rate has slowed to 3% since 2020, the 8% yield today, when compounded along with dividend growth, can give a 10% average annual return in the long run.
You can buy the above dividend and growth stocks at the dip without thinking twice. They can help you catch up on investments falling behind the 10% average return.
