## Think monthly, retire rich

If you're looking for a New Year's resolution that is simple to stick to but yields some pretty powerful results, you've come to the right place for inspiration.

Just bump up your monthly long-term savings every Jan. 1. (Of course, this assumes you are already making automatic monthly contributions to an investment portfolio.)

Let's break down the numbers quickly.

Suppose you are 18 and planning to retire at 65. Right now, you don't have a lot of money, so let's say you commit to putting away \$50 a month. Let's also assume a 7-per-cent long-term rate of return for your portfolio. Over the next 47 years, you will contribute \$28,200 - and your retirement nest egg will be worth a tick under \$220,000 before accounting for inflation. After inflation though (assuming a long-term average of 3 per cent), that egg is reduced to about \$83,000.

When you're 18, you may not have a lot of money, so setting aside \$50 is better than nothing. But contributing \$50 when you are in your fifties should be a walk in the park; and, really, you should be able to contribute more than that. So when do you make the monthly savings leap? Do you go for \$50 a month for the first 10 years, and then bump it up to \$200 a month after that? That would give you a retirement bundle of roughly \$530,000 before inflation and \$235,000 after.

Now let's suppose you pay off your mortgage by 55. Perhaps you can start putting \$1,000 a month into your retirement savings at that point. You're then looking at \$692,000 before inflation and \$367,000 after. Not too shabby.

But what happens if you just commit to saving 10 per cent of your gross income each and every year?

Say our test subject starts by earning \$25,000 annually, and that income rises by 4 per cent each year, slightly ahead of inflation. She will be earning about \$38,000 a year at age 30; \$56,000 at 40; \$84,000 at 50; and \$124,000 at 60. (Some might say that assuming \$25,000 for an 18-year-old is high; but the after-inflation income at age 60 is \$38,000 - way too low. So let's just run with this for now.)

Our test subject commits to contributing 10 per cent of gross income to the long-term savings portfolio. Every year, the contribution is increased by 4 per cent to match the increase in salary, so she is perennially saving 10 per cent of gross income.

What do the numbers look like now for the retirement nest egg? More than \$1.6-million before inflation, and about \$740,000 after.

So if you are looking for a recurring New Year's resolution that's easy, powerful and rewarding, recommit to saving 10 per cent of your gross income every year. The sooner you start, the easier it is to turn saving into a lifelong habit. Everything else goes up every year. (Insert stock-market joke here.) So should your savings.

How it works:

It's dead simple. Every January, bump up your monthly contribution. Short-term sacrifice, huge payoff.

Some examples:

What you'll have at 65 if you start contributing \$250 a month at age 40

 No increase annually: \$136,824.61

 5% increase annually: \$241,369.36

 10% increase annually: \$468,917.14

* assumes inflation and a 7-per-cent return

Preet Banerjee is the W Network's Money Expert and a senior vice-president with Pro-Financial Asset Management. His website is wheredoesallmymoneygo.com