Looking for an easy and convenient way to start building up savings for retirement? With Pre-Authorized Contributions (PACs), you choose the amount you’d like to contribute, and how often – and you make adjustments at any point in time!
The beauty of a PAC is that it’s automatic. Just choose the amount you want to save and how often you want to save it–for instance, weekly, biweekly or monthly. Once it’s set up, you’ll be saving money without even thinking about it.
The benefits of PACs
1. Helps you stick to your plan
When it comes to saving, it’s sometimes easy to get sidetracked. A PAC allows you to make saving priority number one by ensuring you never forget.
2. No more scrambling to meet Registered Retirement Savings Plan (RRSP) deadline
With a PAC you’ll save automatically for your RRSP–all year round–and avoid the stress of RRSP contribution deadlines.
3. Eliminates the guesswork of when to invest
Research has shown that investing on a regular basis is much more effective than trying to “time the markets”–especially during periods of volatility.
4. Works with almost any budget
With a PAC, you determine what you can afford to save. Get started with as little as $25 per month.
“PAC” it up – contribute more as you earn more
As you get older, it’s likely your cash flow will improve. While two in three Canadians are saving on a monthly basis,* many forget to adjust their plan as their financial circumstances change. It’s a great idea to revisit your PAC contributions on a regular basis– especially after major changes, like paying off student debt or landing a promotion. While it’s tempting to just set it and forget, you’ll be amazed by how much more you can save by increasing your contributions–even a little bit.
For example, if we look at an investor who contributes $200 monthly for 15 years versus the same investor increasing their monthly contribution by just $25 each year. Over 15 years, the investor who contributes $200 monthly has $53,181 vs. the investor contributing $200 monthly plus $25 increase each year has $93,713. The difference is over $40,000!**
Make it bi-weekly and save even more
Changing your contribution from a monthly basis to bi-weekly can really add up. Consider this: If you save monthly, you’re making 12 contributions a year. However, when you save bi-weekly, you’re paying half your monthly amount once every two weeks instead.
For example, if an investor made a monthly contribution of $200 over 20 years, they would have $81,492. If they were to instead make a bi-weekly contribution of $100 over 20 years, they would have $88,186. That is almost $7000 more when saving on a bi-weekly basis.
PACs - making the most of market volatility
Market swings often make it difficult for investors to determine exactly when to invest–especially when trying to invest one lump sum each year.
However, with PACs you can invest a fixed-dollar amount at regularly scheduled intervals. By investing throughout the year, PAC contributions smooth out your purchase price over the long term and eliminate the risk of investing all your funds at the wrong time.
The graph below illustrates regular monthly contributions of $250 at the beginning of each month. As the unit price fluctuates from month to month, the quantity of units purchased also changes (when the unit price is lower, more fund units are purchased: when the unit price is high, less funds are purchased).
Your Scotiabank Advisor can help
Investing on a regular basis through pre-authorized contributions is a great way to build your savings easily and automatically. Try our interactive PAC calculator to see how your savings can grow.
*Source: Scotiabank, Global Brand & CustomermInsights, Consumer Confidence Outlook & Attitudes towards Saving/Investing, June 2019.
***For illustrative purposes only. The example uses a hypothetical rate of return of 5%, assumes reinvestment of all income, compounded annually and does not include transaction costs, fees or taxes. The example does not reflect actual results or the returns or future value of an actual investment.
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