I turn 25 this coming November.
An age that feels light years away from retirement. Yet, here I am wide awake thinking: “Will I be okay, financially, at 65?”
I have nothing invested for retirement.
Zero.
I kept putting this article off. Why? Some quiet dread about admitting — to you and, more painfully, to myself — that I’m nowhere near ready for financial independence?
It’s a sobering thought.
Are you in your 20s and feeling like retirement is a distant concern? It might seem early, but the financial choices you make now can dramatically shape your future. This article explores why starting to save and invest early is crucial for a comfortable retirement, even if you’re starting from zero. We’ll delve into the power of compound interest, the benefits of tax-advantaged accounts like TFSAs and Roth IRAs, and the importance of consistent savings habits. Discover how taking action today can secure your financial well-being for tomorrow.
The Zero Savings Trap
I’m not the only one staring at a bare savings account.
That’s why it’s a good idea to create a nest — for when life’s unexpectedness hits you in the face.
Life doesn’t wait, and neither should you. Without a cash buffer, you’re borrowing or begging.
For a lot of people, it’s much more wise to use their own savings for emergencies vs. a high interest credit card or asking family for money.
Savings aren’t optional – they’re the foundation.
Without them, any talk of investing feels like building a house on sand.
To be honest with you, some days I think we are too hopeful, thinking we’ll catch up to a big portfolio later on down the line…
THIS IS WRONG.
Start now while you still have time on your side.
Many young adults find themselves in the ‘zero savings trap,’ facing student loan debt, the rising cost of living, and the temptation of instant gratification. However, building a financial foundation is crucial, no matter your current situation. A savings cushion provides a safety net for unexpected expenses, preventing you from relying on high-interest debt. It’s about prioritizing your future self and recognizing that small, consistent savings contribute to long-term security.
Time and Consistency Are Your Friends
“Once there’s a cushion, what’s next?”
It’s not about chasing crypto moons or hot stocks — it’s time and consistency, showing up every week.
That’s the secret mac sauce.
Compound interest sounds like math-class jargon, but it’s real: small amounts snowball.
I’m Canadian, so I’ve been eyeing a Tax-Free Savings Account (TFSA). It lets you grow money tax-free, and in 2025, the annual contribution limit is $7,000 (each year ranges from ~$5000–$7000).
Once you have an emergency fund, the next step is investing. The key to successful investing, especially in your 20s, is time and consistency. Don’t be swayed by get-rich-quick schemes. Instead, focus on long-term strategies like investing in diversified index funds. Compound interest is your greatest ally, turning small, regular contributions into substantial wealth over time. For Canadians, consider utilizing a Tax-Free Savings Account (TFSA) to grow your investments tax-free. For Americans, a Roth IRA offers similar benefits.
$3 Million Portfolio: The Power of Compound Interest
Example: invest $6000 per year.
Here’s the math if you invest in an index fund, according to this compound interest calculator:
$125 weekly payments ($500 per month) for 12 months is $6,000 a year – at 10% growth for 40 years.
The total?
$3 million.
Market dips will occur. The 2008 crash slashed returns for years — but your friends, consistency and time, will smooth that out.
Live off 4% per year.
4% of $3 million is $120,000…tax free!
That’s a lot of money. Even by the time you retire, with inflation and all, it’s still a lot of money!
And you may find yourself needing 2%, 6%, or 10% per year, depending on other sources of income you have in retirement, such as pensions, dividends, or other investments.
But with just a TFSA alone, you’ll be set up very nicely.
I hope you are starting to see the power of compound interest.
To illustrate the potential of early investing, consider this example: investing $6,000 per year in an index fund with a 10% average annual return over 40 years could result in a $3 million portfolio. This is the magic of compound interest at work. Even market downturns are smoothed out over time with consistent contributions, allowing you to reach your financial goals.
Compound Interest Punishes Procrastination
What if I wait until I’m 35 to invest?
$1.1 million.
Almost $2 million in tax free money lost because I hit snooze for a decade…
Ouch. Gotta stop hitting snooze.
- “Why can’t I just rely solely on government and employer pensions?”
As everyday prices rise and the dollar’s purchasing power declines, one of the smartest financial moves you can make is to incorporate a TFSA into the mix. That way, you’ll be in a more stable financial position. In other words, don’t put all your eggs in one basket!
Btw – the U.S equivalent is a Roth IRA.
The tax free account will be your lifeline.
The $3 million by 65 assumes 10% annual returns, but at 7% (more conservative, aim for 10% or higher, though), it’s $1.3 million after 40 years of growth.
4% of $1.3 million is $52,000.
Not a bad chunk of tax free change if you ask me.
This is the math for a 25 year old who wants to invest for 40 years. Play around with the calculator to see how much wealth you can build based on your own situation.
The cost of procrastination is significant. Waiting just ten years to start investing can drastically reduce your potential retirement savings. For example, delaying until age 35 could mean missing out on nearly $2 million in tax-free money. Don’t solely rely on government or employer pensions, as they may not be sufficient to maintain your desired lifestyle. Supplementing with a TFSA or Roth IRA provides a more secure financial future.
The Tax-Free Account Will Be Your Lifeline
The $3 million by 65 assumes 10% annual returns, but at 7% (more conservative, aim for 10% or higher, though), it’s $1.3 million after 40 years of growth.
4% of $1.3 million is $52,000.
Not a bad chunk of tax free change if you ask me.
This is the math for a 25 year old who wants to invest for 40 years. Play around with the calculator to see how much wealth you can build based on your own situation.
Tax-advantaged accounts like TFSAs and Roth IRAs are crucial for retirement savings. Even with conservative investment returns, these accounts can provide a substantial income stream in retirement. The power of tax-free growth allows your investments to compound more effectively, maximizing your wealth over time. Play around with a compound interest calculator to estimate your potential retirement savings based on your individual circumstances.
Final Thoughts
This article isn’t meant to scare you but rather to provide a glimpse into your portfolio’s potential future.
I’m not here to preach. I’m not here to choose an index fund for you. I’m still figuring this out.
Vanguard, Berkshire, RBC ETFs, Invesco QQQ, etc etc. There are so many great funds out there you can research.
But the cost of waiting is sinking in – it’s bothering me.
And I’m sure it’s bothering you too.
Start investing now, so by the time you reach 65 years of age, you’ll feel relief, gratitude, and peace – all folded into one.
Investing in your 20s is not about being scared; it’s about seeing the potential of your future. While the choices may seem overwhelming, remember that starting is the most important step. Whether you choose index funds, ETFs, or other investments, the key is to begin saving consistently. The peace of mind that comes from knowing you are building a secure future is well worth the effort. Take control of your financial destiny and start investing today.
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