$500/month for RRSPs???

[Keebler Elf]

I was reading a site that recommended putting $500 a month into RRSPs for your retirement. They used that number like it was the "proper" amount and stated it would result in a nestegg of more than $1.5 million by age 65 (assuming you start when you're 25).

I dunno, but that seems like an unreasonable expection of savings IMO. Yes, I'm sure there are people that save that much or more every month, but I seriously doubt the vast, vast majority of Canadians could afford that hit.

Comments?

 

[tboy]

You are too right, for most canadians that is like half their monthly income....

I read somewhere that when you choose a retirement plan you have to account for 15,000.00 per year for 20 yrs and then work backwards from that.

I wonder how that Canada Reverse Mortgage works....if it is as they say on the ads, you'd be screwed if you ended up living longer than expected and spent all your equity you had in your home.....

In my case I will be working until I die lol

 

[drlove]

$500 a month may seem like a lot, but it really isn't. You just have to discipline yourself to make the monthly investment until it becomes routine. Really, the key to smart financial planning is to live below your means. It may mean cutting back on some luxuries, such as the frequency of participation in the hobby but in the end it will have been worth it.

 

[fuji]

I max out my RRSP contribution limit every year, which is less than 18% of my salary because I am over the cap. But, whatever your income, you should aim to max that sucker out. It is free money.

RRSP's are paid with pre-tax dollars. If you're Alexis, that is the same as after-tax dollars But for the rest of us, it is a big difference. Not maxing it out is plain stupid.

 

[drlove]

You can also borrow lump sums and invest that money to get it working for you immediately. Sometimes credit cards will send you offers of 1.9% for 9 months, or 2.9% for 6 months. If you take out a substantial amount, you will be ahead of the game. Just be sure you can repay it before the promotion ends. I like this idea better than a conventional RRSP loan.

 

[fuji]

You can also borrow lump sums and invest that money to get it working for you immediately. Sometimes credit cards will send you offers of 1.9% for 9 months, or 2.9% for 6 months. If you take out a substantial amount, you will be ahead of the game. Just be sure you can repay it before the promotion ends. I like this idea better than a conventional RRSP loan.

...and don't put even one extra cent on the credit card during this time. The way those work, say you borrow $5000 at 1.9% and then spend $200. Next you pay down $200. What do you think happens? Do you think you have $5000 at 1.9% still?

No. You now have $4800 at 1.9% and $200 at 20% or whatever their shitty rate is. If you pay a further $1000 down that $200 is *still* at 20%.

Their fine print says that they will apply any payment to the money borrowed at the lowest interest rate, so you will pay interst at 20% until you pay it off to the last dollar.

If during this time you keep using your credit card as normal, and rack up (and pay down) $500/month, the portion at 20% just grows and grows.

 

[1hornychinaman]

I think this is a great thread, keep those tips comming. The canadian tax act is a rediculously thick black book. I remember my accounting friends in university furiously bookmarking it with sticky notes. There's way too much to know for any single individual, I think we can all benefit from this thread so keep those tips comming!

 

[Chivas Regal]

Everything SB writes is true. Alexis eludes to the Automatic Millionaire which is a great book. Some others I recommend -

The Pig and the Python
The Millionaire Next Door
and the classic- The Wealthy Barber - for early 20's starting out
Manifest Your Destiny

there are many others, don't be overwhelmed. Personally, I don't go out of my way to learn new tax laws, that is my Accountants job. You may think you can't afford one, in reallity, you can't NOT afford one. They are pro's and they represent you to the Gov. audittors, should you get auditted.

 

[Chivas Regal]

RESP's and the secret of being rich

I forgot to mention, if you get in the habit of saving at a young age, it becomes just that a habit. Like smoking or drinking, saving will actually be the best habit you will ever start.
The real secret to saving and not being overcome with doubt is:

Compound Interest!!!!

Google it if you don't know what it is, it is the secret to every rich persons wealth.

 

[drlove]

...and don't put even one extra cent on the credit card during this time. The way those work, say you borrow $5000 at 1.9% and then spend $200. Next you pay down $200. What do you think happens? Do you think you have $5000 at 1.9% still?

No. You now have $4800 at 1.9% and $200 at 20% or whatever their shitty rate is. If you pay a further $1000 down that $200 is *still* at 20%.

Their fine print says that they will apply any payment to the money borrowed at the lowest interest rate, so you will pay interst at 20% until you pay it off to the last dollar.

If during this time you keep using your credit card as normal, and rack up (and pay down) $500/month, the portion at 20% just grows and grows.

The way you get around that is to use one card for borrowing to fund your RRSP, and another credit card for daily purchases.

 

[drlove]

I forgot to mention, if you get in the habit of saving at a young age, it becomes just that a habit. Like smoking or drinking, saving will actually be the best habit you will ever start.
The real secret to saving and not being overcome with doubt is:

Compound Interest!!!!

Google it if you don't know what it is, it is the secret to every rich persons wealth.

It's true... David Bach has created a chart to illustrate this idea in his book, "The Automatic Millionaire". I'm on track for 1.3 Million!!

 

[Macator2003]

I was reading a site that recommended putting $500 a month into RRSPs for your retirement. They used that number like it was the "proper" amount and stated it would result in a nestegg of more than $1.5 million by age 65 (assuming you start when you're 25).

I dunno, but that seems like an unreasonable expection of savings IMO. Yes, I'm sure there are people that save that much or more every month, but I seriously doubt the vast, vast majority of Canadians could afford that hit.

Comments?

I think RRSPs are a great way of beating Uncle Sam (or our Canadian equivalent). I usually buy around $5,000 a year. This results in a pretty significant refund around the middle of March since I send my stuff electronically. I have a friend that puts every last cent away, he is one of the most frugal people I know. His retirement day/month/year is etched in his brain. He plans on living life when he turns 65.

I think there is a happy medium since there's no guarantee that we'll reach 65 and be in good enough shape to enjoy it. $500 a month equals out to $6,000 a year so I guess I'm not too far off. Alot depends on what you make and how many bills and mouths you have to feed. Its a good recommendation to try to keep to. If you're a smoker (a pack a day) and you quit -that's 5 X 30 = $150. That will get you on your way.

 

[Keebler Elf]

I'm not so interested in whether or not it's a good idea. I think that answer is obvious. I'm more interested in whether or not it's realistic for the VAST number of Canadians. Yeah, it's great an' all to recommend people invest $500 a month in an RRSP, but if you're only making $25,000 a year (or whatever the average happens to be), it might not be that realistic. And in that case, the strong advocacy of RRSPs may just be a strategy to get people to save so that the CPP doesn't need to be around around anymore...

edit: hmm, the national family average seems to be around $60K. That's a lot more than I expected. Maybe it's not so unrealistic afterall...

 

[fuji]

The way you get around that is to use one card for borrowing to fund your RRSP, and another credit card for daily purchases.

Ya, to be honest, I have done this trick before too, just wanted people to know it has to be an unused card you borrow from.

 

[fuji]

As for whether it is a good idea...

So, by comparasin, for a defined benefits plan a civil servant employee is typically required to contribute around 8% of their income to a pension plan that, if they work until retirement, is supposed to provide retirement income at some reasonable level.

RRSP limit is higher in case your investments do badly, so you can play catch up. The civvy thing combines everyone into one pot and they can afford more ups and downs.

If you guys really want to talk about this shit, this is the wrong place. Try here:

http://www.financialwebring.com

There are some others linked from there.

 

[Stoo]

Retirement 101

Retirement planning would be so much easier if you knew when you were going to die. Post-divorce, which will set me back over $1,000,000.00 over the next few years, took a bit of a toll on my retirement savings.

My new retirement plan involves a much younger wife with a great job, lottery winnings, and eventually, suicide. I also intend to write a book explaining the benefits of my plan, which will become a best seller and add significantly to my retirement income.

See.... nothing to it!

 

[canucklehead]

Borrowing on the credit card i would almost never recommend...but if u have to u have too. Most banks with give you a line of credit at prime if it is for an RRSP purchase with them..... they make money both ways.
I have been putting away average 10 to 20 percent of my income since i was 18 in either a savings account (which became stock and investment holdings as well) or RRSP and now even more into RESP as well and must say at first it seemed tough but now with my maxed out contributions and refunds are simply put into another savings account it all makes sense and is also very much a way to take any sort of worries about money off your mind.
I am now 41 work for my self and in another 10 years or so in the position to choose whether to work full time still or take a more leisurely approach to life. Probably keep working since i love what i do but still the choice is there. I have done some low paying and shitty jobs till i got to the point i am now and still saved and it all works out well trust me just save.

 

[mmouse]

There are many ways to invest money that are not RRSP eligible - e.g. property, or your own business - that may make you much richer at the end of the day. So maxing out is not always the smartest thing to do.

 

[Keebler Elf]

As for whether it is a good idea...

So, by comparasin, for a defined benefits plan a civil servant employee is typically required to contribute around 8% of their income to a pension plan that, if they work until retirement, is supposed to provide retirement income at some reasonable level.

On a provincial level, it starts off around 6% and then climbs to 8% once you surpass some specified level (CPP contributions maybe?). It's one of the stronger plans and provides adjustments for inflation (to a certain extent).

 

[fuji]

There are many ways to invest money that are not RRSP eligible - e.g. property, or your own business - that may make you much richer at the end of the day. So maxing out is not always the smartest thing to do.

This is true. But the outside investment has to beat the RRSP by somthing like 70% otherwise the tax advantages of the RRSP wins. So if you have a 10% return possible in your RRSP you need something like a 17% return from your outside investment to keep up, after taxes.

Possible with a small business, unlikely with property.