In my latest personal net worth review post, I mentioned that “now is the time to get your act together to do some tax planning if you have been slacking.” Well, I was slacking a bit, so I started my quest to try to find new deductions or methods to lower my income tax. After a little digging around, I got side-tracked because I came across a very interesting statistics from the Canada Revenue Agency (CRA) website. The statistics lead me to ask an important question, “is there an easy way to boost my retirement savings?”
Before I dive into the statistics from the CRA, let’s take a step back and talk about savings in general. Let’s face it, not spending your money now and saving for tomorrow sucks. For many people, it’s really difficult to delay their gratification now and save for retirement. That’s why the average Canadian carry an average balance of $22,125 in non-mortgage debt based on the latest report from Equifax.
Pay Off High Interest Debt First
If you’re currently carrying a non-mortgage debt balance, I would recommend that you pay off your debt first before you try this recommendation to boost your retirement savings. Chances are, the interest rate that you pay on your debt will be more than the 7% estimate rate of return in this example. Hence, you’ll keep more money in your pocket if you pay off your high-interest debts first.
Is There An Easy Way?
So, is there any easy method to boost your retirement savings that don’t require you to change your spending habits or to cut back on your current lifestyle at all? Are you dying to know? Okay, I think that I may have to stop babbling and delaying. If I don’t review the method, people will start to get upset at me. I better get to the point. Fast.
Your Average Tax Refund
The easiest way to boost your retirement savings is to invest your tax refund wisely every April. Instead of using the tax refund to go on a vacation, buy a new TV or some new gadgets, invest it. I will show you exactly how to do it. If you start early (at age 25), you can save close to $365,000 by the age of 65, tax-free. Don’t worry, if you are a late starter (like at age 40), you can still save close to $117,000 by the age of 65 without breaking a sweat. Are you interested? Let’s find out how.
Okay, here’s the interesting stats that I came across on the CRA website. Based on the 2016 tax returns filed by Canadians, the average Canadian got an average of $1,735 in tax refunds. If you’re getting less than the average amount, you’re either really efficient with your taxes or you’re not working hard enough to get deductions. If it’s the latter case, then pick up the slack and try to keep more money in your pocket.
Invest In The S&P 500 Index
So, what if you are getting the average tax refund amount or a more? Well, you are all set to boost your retirement savings. All you have to do is invest at least $1,700 of your tax refund in the iShare S&P 500 index ETF – (XSP) using your Tax Free Savings Account (TFSA) every year until you reach the golden age of 65. Assuming that from now till the time that you reach 65, the average annual compounded return is a modest 7%. Historically, over the last hundred years, the S&P 500 index’s average compounded return is more than 7% annually. You may be surprised by what I am about to review in the table below.
| Age | Investment Amount | Future Value At 65 |
|---|---|---|
| 25 | $1,700.00 | $25,456.58 |
| 26 | $1,700.00 | $23,791.19 |
| 27 | $1,700.00 | $22,234.76 |
| 28 | $1,700.00 | $20,780.15 |
| 29 | $1,700.00 | $19,420.70 |
| 30 | $1,700.00 | $18,150.19 |
| 31 | $1,700.00 | $16,962.79 |
| 32 | $1,700.00 | $15,853.08 |
| 33 | $1,700.00 | $14,815.96 |
| 34 | $1,700.00 | $13,846.69 |
| 35 | $1,700.00 | $12,940.83 |
| 36 | $1,700.00 | $12,094.24 |
| 37 | $1,700.00 | $11,303.03 |
| 38 | $1,700.00 | $10,563.57 |
| 39 | $1,700.00 | $9,872.50 |
| 40 | $1,700.00 | $9,226.64 |
| 41 | $1,700.00 | $8,623.02 |
| 42 | $1,700.00 | $8,058.90 |
| 43 | $1,700.00 | $7,531.68 |
| 44 | $1,700.00 | $7,038.96 |
| 45 | $1,700.00 | $6,578.46 |
| 46 | $1,700.00 | $6,148.10 |
| 47 | $1,700.00 | $5,745.88 |
| 48 | $1,700.00 | $5,369.99 |
| 49 | $1,700.00 | $5,018.68 |
| 50 | $1,700.00 | $4,690.35 |
| 51 | $1,700.00 | $4,383.51 |
| 52 | $1,700.00 | $4,096.74 |
| 53 | $1,700.00 | $3,828.73 |
| 54 | $1,700.00 | $3,578.25 |
| 55 | $1,700.00 | $3,344.16 |
| 56 | $1,700.00 | $3,125.38 |
| 57 | $1,700.00 | $2,920.92 |
| 58 | $1,700.00 | $2,729.83 |
| 59 | $1,700.00 | $2,551.24 |
| 60 | $1,700.00 | $2,384.34 |
| 61 | $1,700.00 | $2,228.35 |
| 62 | $1,700.00 | $2,082.57 |
| 63 | $1,700.00 | $1,946.33 |
| 64 | $1,700.00 | $1,819.00 |
| 65 | $1,700.00 | $1,700.00 |
| Total | $69,700.00 | $364,836.27 |
Start Investing Early
For someone who started investing at age 25, you’ll have a total of approximately $364,836.27 in retirement savings by the time you’re 65. For someone who started at 30, 35 and 40, you’ll have a total of approximately $253,152.88, $173,524.17 and $116,750.00, respectively by the age of 65. See the summary table below.
| Starting Age | Total Investments | Future Value At 65 |
|---|---|---|
| 25 | $69,700.00 | $364,836.27 |
| 30 | $61,200.00 | $253,152.88 |
| 35 | $52,700.00 | $173,524.17 |
| 40 | $42,200.00 | $116,750.00 |
Don’t Be A Skeptic
Now, I know that some of you are going to be skeptics and think that this post is just a gimmick post to grab some attention and page views. Well, I can assure you that it’s not and I am going put my money where my mouth is. I am going to make an offer to any skeptics out there who’s 40 or younger. I am going to offer to sell you (the skeptic) a “customised ISaved5k put options” (yes, this put option is unique and it’s only offered on this blog).
For those that are not familiar with put options, you can read my post on how I make money selling options. Essential, if you are the purchaser of a normal put options, you have purchased the right and not the obligation to sell to the seller of the put options something (whatever you agreed upon) for a specific price within a specific time frame. To get that right, you’ll have to pay the options writer (seller) a premium (some monetary value).
Here are my customised ISaved5k put options offer:
- Any Canadian who’s 40 or younger can purchase this option
- Once you’ve entered into this agreement, you need to invest at least $1,700 to purchase the iShare S&P 500 index ETF – (XSP) using your Tax Free Savings Account (TFSA) once a year
- You need to continue with this investment once a year until your 65th birthday and re-invest any income that you received back into the iShare S&P 500 index ETF – (XSP)
- You cannot withdraw any money from the TFSA during this period
- At December 31st of the year of your 65th birthday, you will sell all the iShare S&P 500 index ETF – (XSP) to me at double the principal amount that you have invested.
- You don’t need to pay any premium upfront for this contract, just type “I want to help Leo make free money.” in the comment section.
- Pro: you will be guaranteed to double your investment tax-free
- Cons: you will not be getting anything above twice the amount of your principal
The Awesome Track Record Of The S&P 500 Index
After reviewing my options, the skeptics must be asking, “why would someone be willing to make this offer?” First of all, the S&P 500 index had never lost any money during any continuous 20-year period. For my worst case scenario, I have a 25-year period if someone at the age of 40 bought my options. Secondly, when you invest consistently over time (this is called dollar cost averaging), you are following a proven investment system to make money. Both of these factors are in my favour. Hence, I am more than willing to take the bet with these advantages.
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My Two Cents
Just by investing the average tax refund amount of $1700 once a year, this single financial move can help you build at least a six-figure retirement nest egg for individuals who are 40 or younger. If there is one move that you need to make in your life to build some sort of financial security for yourself, this is the one. Don’t wait, start investing in your future today.
So, will you buy my customised ISaved5k put options? Or you’ll make this one bold move to boost your retirement savings?
About Leo
Hopefully this will motivate more people to invest their tax refunds rather than looking at it as “extra” and blowing it on something useful. As you’ve clearly shown, it can REALLY add up over time!
@Brad, all it takes is just one move per year. Hopefully, the numbers will convince people to save and to start thinking about their future.
I am all about saving money. We want to enjoy the good life after we retire!
I’ve just started earning & my parents are already telling me to save money. I’ve heard mutual funds are quite good, is it so?
I think I’d be too scared to invest in stocks..
Thank you so much for some great sounding tips, I definitely think that paying off the high-interest debts first are a must.
@Sarah, My rule of thumb is to never carry a balance on your high interest loans. The faster we get rid of those loans, the more money we’ll keep in our pocket.
I will keep this in mind. I always want to have enough in retirement. We always put money back now.
This is a great post. I have been trying to increase our retirement savings.. We are hoping to be able to retire early.
this is so helpful! i cant wait to have that financial freedom and have a worry free retirement!
I hope to have that scheme here! I really want to have financial freedom soon!
Saving should be a must, however, most fail to save and struggle during retirement. I believe in saving a piece of every income brought into my home.
You make such good points. People should be fearing saving enough for retirement rather than dying in a plane crash!
Sondra xx
prettyfitfoodie.com
I feel like convincing people to invest is definitely tough at times. They don’t normally seem too motivated until it feels like it’s too late. I am really beating the drum but hopefully I can continue reaching more and more people with my Reaching FIRE course. We shall see 🙂
I’m sorry I’m not a Canadian because I’m the person who plans in advance. Separating a certain amount of money every year can really give us security later in life.
These are some great tips. One needs to be very careful before inventing their savings
these are really great recommendations. it’s so important to plan for the future.
I like the chart, it’s so aesthetically pleasing! I usually invest my tax refund, and look forward to it! However, not everyone gets a tax refund (especially small business owners), I guess they will have to budget for saving and investing instead! 🙂
Great chart. I always enjoy investing our tax return.
another good weekly post Leo, I always find your blog interesting & informative …. well done
” I want to help Leo make free money”… you cannot be serious?. Thank goodness this offer is only available on your blog
You know that’s not fair that only you would make money, what about the rest of us?
You had my head hurting on this one, smart guy …lol. I wonder if anyone else pick up on this point?
On BUYING the XSP PUT option, why on earth would anyone buy a PUT option when XSP has a record of continually increasing in price & expected to do so over the long stretch, isn’t that throwing away money (well my money to you as the seller) sneaky guy Leo?.
a $10K investment in 2007 is now worth approx $20k
The $30 PUT expiring Jan 2019 would cost me as the buyer approx $3.00/share & that’s what you’d pocket & I would lose.
Instead of buying 100 shares of the stock at $30 would it be simpler to buy $3000 worth of the long CALL $30 & get at least 10x the value even if it is just out of the money?
The $30 call expiring Jan 2020 cost $1.25/share (due to the time value), my risk on the downside is $1.25. If I want to BUY the $30 CALL expiring March 2019 it will only cost me $0.85
Rinse & repeat every 3, 6, 12, 24 months
from the MX options exchange XSP option chain
https://www.m-x.ca/nego_cotes_en.php?symbol=XSP*
FWIW, folks are not allowed to SELL PUT options in a registered account
What further advice for your readers do you have on this Leo?
People always view there tax refund as some sort of gift from the government that is meant to be spent and enjoyed. Hearing people discuss there plans for what they will do with that money is usually funny. Personally I would love to invest our tax refund if we ever got one. It is amazing that we file zero for both state and federal but always still end up owing.