Help Newborns FINISH Investing for Retirement - During Their Formative Years - When It Costs a Tiny Fraction As Much
Each year, there are approximately 350,000 babies born in Canada (an average of 959 every day).
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Obviously, each of these newborns will need enough money on which to live, after they retire, 65 years (or so) from now.
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The well established practice is, for each to save and invest a portion of their earnings - throughout their 'working years' - so that they'll be able to live off their accumulated retirement savings, once they're no longer working, during their 'retirement years'.
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The Government's policies and programs are intended to support this current practice. These include:
CPP deductions from earnings, off every employee's paycheck
corresponding CPP contributions from each employer
favourable tax treatment (tax deductions & income tax-deferral) for Retirement Savings Plans (RSPs)
additional favourable tax treatment (tax-free capital appreciation on contributions made with after-tax dollars) for Tax Free Savings Accounts (TFSAs), which can't even be opened for someone until they're age 18)
How well is this current practice working?
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As of August 2023, over 7.1 million Canadian seniors were receiving an average of $10,697 per year each (before tax), in financial assistance from the Government.
This totals $77 billion per year, which is the Government's largest expenditure, currently representing one out of every 6 dollars spent.
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So, this financial support for seniors is costing Canadian taxpayers a huge amount of money.
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$77 billion per year is equivalent to $1,925 per year from EVERY one of the 40,000,000 people who live in Canada.
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And, it's not like those who receive this financial assistance from the Government are doing very well financially. For example, 13% of unattached seniors live below the poverty line.
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Moreover, the Government can't afford it. The Government's projected deficit - for just the 2023-24 fiscal year - is $40 billion. This itself represents $1,000 MORE in debt for every one of the 40,000,000 people who live in Canada.
And. the $40 billion projected deficit for the 2023-24 year is adding to the $1,170 billion in debt the Canadian Government already has (which is an amount equivalent to $29,250 for every one of the 40,000,000 people who live in Canada)!
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Finally, as bad as this is, the problem is getting even worse, as the Baby Boom (Canada's largest generation ever) enters its retirement years.
This means that there will be fewer Canadians in their working years, to help fund the financial support needed for the largest number of retirees we've ever had.
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How much Government debt do we want to burden our children and grandchildren with?
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As a society, we MUST change the way we prepare our citizens for their retirement years (before it's too late).
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The BIG Shift can solve this problem.
We need to capitalize on the much longer investment horizons which children have, so that compounding has more time to work.
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Compare these 2 scenarios:
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if we (as a society) help a new-parent invest a total of $36,922, for their baby's retirement by the child's 1st birthday, this itself should grow to $10,000,272 by the time the child is 65 years of age (provided the S&P 500 grows by an average of 9% per year, which is less than what it averaged over the past 65 years; and that the child isn't required to pay ANY investment fees or management fees).
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if we wait until a newborn reaches their working years, and help them invest the same $36,922 before their 25th birthday, this should grow to $1,264,071 by the time they're 65 years of age. This is $8,736,201 LESS.
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Investment horizon length makes ALL the difference.
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FIA Goals
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We currently consider a child to be 'finished investing' for their retirement when the child is on track to accumulate $10 million by age 65, without them having to invest ANY money during their working years.
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Working backwards from this $10 million by age 65 capital accumulation target, we can calculate how much a child needs to have in their investment account, at each particular age, to be on track to accumulate their $10 million. We refer to these amounts as their 'Finished Investing Amount Goals' (FIA Goals).
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Here are just 5 FIA Goal examples
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at-birth: $33,874
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by 3rd birthday: $43,867
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by 12th birthday: $95,275
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by 18th birthday: $159,786
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by 25th birthday: $292,096
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These 5 FIA Goal examples underscore just how important investment horizon length is, and how crucial it is to begin helping children prepare for retirement, as early as possible.
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This is precisely why we focus on helping new-parents and expecting-parents.
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$10 Million Capital Accumulation Target - for Each Child
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Why do we currently use a capital accumulation target of $10 million for each child? At a 9% return, (which is less than what the S&P 500 averaged over the past 65 years), $10 million in capital should produce retirement income averaging $900,000 per year.
At first glance, this may seem like a lot. However, inflation has averaged 3.69% over the past 65 years. And, if it continues to average 3.69%, $900,000 will have purchasing power equivalent - in today's dollars - to $85,387 per year, sixty-five years from now, when a newborn retires.
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Ideally, we'd like each child to be able to accumulate enough in retirement savings so they can very comfortably live just on the annual return their savings produce (without having to withdraw any of their capital).
This could enable them to pass on their retirement savings to their heirs (subject to whatever succession taxes apply), which has the potential to help break the 'poverty cycle', and further increase the standard of living future generations enjoy.
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