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When to Start Saving For Retirement: Compound Interest

The question of when you should start saving for your retirement has a simple answer: as soon as possible.

The earlier you start, the longer your retirement savings have to grow. Whether you plan to retire in 10, 20 or even 30 years, planning now is the key to enjoying a worry-free retirement.


What’s compound interest?

Compound interest is one of the best reasons to start your retirement planning early. It’s a simple strategy to help you grow your savings far beyond the amount you originally invested. In essence, with compound interest, you don’t just earn interest on your original investment. You also earn interest on your interest, which then earns you even more interest, thereby substantially increasing your returns.


Depending on the type of savings or investment account you open, your money can be compounded on a daily, weekly, monthly or yearly basis. The more often the money is compounded, the faster it’ll grow.


How to earn the most compound interest

The best part about saving early is that you don’t have to invest a lot of money upfront. Regularly investing small amounts, especially when you’re young, can make a big difference in how much you’ll have saved down the road.

Here are a few tips to keep in mind:

  • Invest early. The longer your money is invested, the more time it has to grow. For example, contributing to a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA) early in your career will give you a great head start.

  • Contribute regularly. Even if you can only contribute a small amount, the important thing is to be consistent. We recommend setting up automatic withdrawals to steadily add to your savings. Over time, you can slowly increase your contributions as your financial situation changes.
  • Don’t take money out. As your balance increases, so do your returns. In short, the money you’ve made continues to make more money. This snowball effect is a great way to build wealth over time. It’s also why you should resist the temptation to withdraw money from your savings and investment accounts before retirement.


Lastly, the key is to be patient. It often takes more than 25 years of consistent saving to see the benefits of your efforts.


Find Debt Counselling in the Ottawa Area

If debt is preventing you from saving for retirement, the licensed insolvency trustees (LITs) at D. & A. MacLeod Company Ltd. can help. We provide a variety of personal debt management services in Ottawa, Kingston, Smith Falls, Kanata, Pembroke, Cornwall, and Brockville. Our team is committed to working with you to improve your financial situation. The sooner you manage your debt, the sooner you can start saving for the things that matter most. Contact us today for a free consultation.