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Joining your company pension plan early pays: Mario and Maria's story Add to ...

Mario and Maria have a lot in common.

They both:

  • Started work at age 22
  • Make about $50,000 every year ($4,167 a month)
  • Have defined contribution plans. Their companies each contribute 5% of their income toward their retirement ($2,500 a year).
  • However, Mario started his pension plan right away. Maria, on the other hand, had to wait a year to join. What difference does that extra year make?

Let’s say their pension savings grow 6% each year. Here’s what they will have in their pension accounts by age 65:

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  • Maria's retirement savings growth: $466,269
  • Mario's retirement savings growth: $496,895

Note: These examples are for simple illustration only. They do not reflect any tax savings or the impact of inflation or salary increases on contributions. Actual interest earnings may be more or less than the rates shown here.

The results: With one extra year of pension savings, Mario gets about $30,000 more than Maria for his retirement. What does that give him monthly? Before taxes, Mario will receive about $2,830 every month. That’s about $34,000 a year until he reaches his 100th birthday.

Maria, in contrast, will have a monthly pension of about $2,660, before taxes. That’s $32,000 a year. Over her lifetime, this will amount to thousands of dollars less than Mario gets.

Lesson learned: Clearly, even one year can really affect the money you will have when you retire. That’s why, for many people, it makes sense to join your company pension plan as soon as you can.

Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca

Follow us on Twitter: @GlobeInvestor

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