If You Start Investing Today, When Could You Retire?

If you want to retire, you have to invest with that objective. You can blend aggressive and cautious investing to build a sizeable portfolio.

| More on:
Two seniors walk in the forest

Source: Getty Images

The 2008 Financial Crisis has taught Canadians an important lesson and made them more responsible with debt. However, the 2020 pandemic has made Canadians more spendthrift. The key is to bring a balance between spending and saving. The question in everyone’s minds is when could I retire if I start investing today?

When could you retire if you start investing today?

To answer this question, you need to answer a series of other questions. Take a pen and paper and give it some thought.

  • What are your current monthly expenses?

Once you arrive at that figure, grow it annually by 5%. (Canada’s average inflation is 3%, but it is better to take a higher rate to account for surprises.)

  • How much money do you need to retire comfortably?

Your retirement pool should have one portion (maybe 80%) for passive income to maintain the monthly expenses and one portion (maybe 20%) for emergencies and recreation. This percentage can vary from person to person. You determine the percentage based on your requirements and the kind of retirement you want.

I took a scenario wherein an average single Canadian’s monthly expense is $2,000 with rent. This amount will double in 10 years with a 5% inflation rate. You need a retirement pool that pays $4,000 monthly or $48,866 annually.

The Canada Pension Plan (CPP) takes care of 27% to 40% of your expenses. I arrived at this percentage by calculating the average monthly CPP payout for age 60 ($532 – 27% of $2,000) and age 65 ($831.9 – 42% of $2,000) in 2024. You have to prepare for the remaining 70 to 75%.

YearMonthly Expense @ 5% inflation
How monthly expenses will grow?

If you want to retire in 2034, you will need $36,650 in annual passive income (75% of $48,866).

TSX dividend aristocrats give an average yield of 6%, which means a $610,000 portfolio would earn $36,650 annually (6% of $610,000). A retirement pool of $760,000 could help you retire comfortably – $610,000 (80%) for passive income and $153,000 (20%) for emergencies and recreation.

How do you invest to retire?

When the investment tenure is short, there is a need for some risky high-growth stocks and long-term growth stocks that can grow your money multiplefold.

Descartes Systems (TSX:DSG) is a resilient long-term growth stock that can grow your money at a compounded annual rate of 20%. A $10,000 investment in this stock in June 2014 would have bought you 666 shares at $15/share. Today the value of those shares is $85,900 at $129/share. The supply chain management solution provider continues to enjoy mid-teens percentage revenue growth.

Descartes is seeing strong demand for its customs and regulatory compliance solutions due to supply chain disruption. The demand for its e-commerce solution will pick up towards the holiday season, driving the stock for years.

Apart from Descartes, you could invest in highly volatile stocks like Hive Digital Technologies and BlackBerry that could grow multiplefold when they reach their inflection point. BlackBerry is waiting for the return of automotive demand and cybersecurity spending growth, which have been stalled in the weak economy. Hive is waiting for another crypto boom. The stock has surged 4,000% in the last 10 years, converting $1,000 into $28,000.

Building the passive income pool

You can book profits from these high-growth stocks and invest in dividend stocks with a dividend reinvestment plan (DRIP). Invest in growth and passive income stocks simultaneously for better results. Now is a good time to lock in a yield of 7 to 9% from stocks like Telus Corporation (7.2% yield) and Timbercreek Financial (9.7% yield). Times like these can help you boost your passive income pool and make up for the lost time.

A $10,000 investment in Timbercreek Financial’s DRIP today could help you earn $1,951 in annual passive income from 2024.

Investing takeaway

While it is difficult to say how much time it will take to build a desired retirement pool, a $10,000 annual investment in the above stocks could help you earn a strong retirement pool in 15 years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Descartes Systems Group and TELUS. The Motley Fool has a disclosure policy.

More on Stocks for Beginners

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

3 Growth Stocks That Could Make You Richer in 2024

These three growth stocks are climbing higher and higher, but there is certainly more to come for these companies.

Read more »

A worker drinks out of a mug in an office.
Stocks for Beginners

3 Stocks You’ll Be Glad You Bought at These Prices

These three stocks are some of the best undervalued companies out there according to analysts, and it's time to get…

Read more »

Happy shoppers look at a cellphone.
Dividend Stocks

Here’s Why I Might Change My Mind and Buy BCE Stock

This dividend stock offers a high yield, but that's not necessarily worth it if it can't achieve this one thing.…

Read more »

dividends grow over time
Stocks for Beginners

2 Stocks to Buy Right Now With $500

$500 is the perfect amount to get started in the stock market and buy two low-priced stocks that could deliver…

Read more »

Glass piggy bank
Dividend Stocks

Prediction: These 2 Canadian Bank Stocks Are Next in Line to Pop

These two Canadian banks are climbing, but still have so much more room to run. And with the highest dividend…

Read more »

Canada day banner background design of flag
Dividend Stocks

If You’d Invested $1,000 in Canadian Tire Stock in 2014, Here’s How Much You’d Have Today

Canadian Tire stock (TSX:CTC.A) is the ultimate Canadian stock. And yet it hasn't been the ultimate stock in terms of…

Read more »

hot air balloon in a blue sky
Dividend Stocks

3 Roaring Stocks to Hold for the Next 20 Years

Sure, there are stocks roaring upwards in the last year, but these three can claim doing it for decades.

Read more »

Upwards momentum
Stocks for Beginners

Growth Spurt: 2 TSX Stocks Set to Skyrocket

Looking for growth that lasts? These two TSX stocks may be up, but there is so much more to come…

Read more »