How much should I have in my RRSP?

How much you should have socked away by age

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From the February/March 2012 issue of the magazine.

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cash_stack2_322It depends on how luxurious a retirement you want. To get a rough idea, start by adding up how much annual income you think you’ll need in retirement; then subtract the amount of money you expect to get from your company pension, Canada Pension Plan and Old Age Security. Then multiply that amount by 30. That’s how much you need to have saved by the time you retire, says Jim Otar, founder of RetirementOptimizer.com.

Here’s an example: You and your spouse are together earning $100,000 a year. Most retirees can live comfortably on half their pre-retirement income. That’s $50,000. Many couples in that situation will get about $33,500 a year in retirement income from the Canada Pension Plan, workplace pensions and Old Age Security, so you’ll need an additional $16,500 a year from your own savings. Multiply that by 30 and you get close to $500,000. That’s the amount you need to have banked by the time you retire.

How do you know whether you’re on track to reach your goal? The chart below offers some sample numbers, based on a few realistic assumptions. The first is that in the early years of your career, RRSPs won’t be a priority. If you’re in your 20s, you’re probably too busy going to school and getting your career started to contribute. Any extra money you do earn should go towards paying down debts. By your early 30s, the mortgage, cars and kids are weighing you down. It’s okay to skip RRSP contributions during these years too, says Malcolm Hamilton, an actuary with Mercer, a human resources and consulting group—as long as you don’t make the mistake of overspending and digging yourself deep into debt.

Once you’re in your mid-30s, it’s time to start attacking those RRSPs. To reach the $500,000 goal (in today’s dollar), you and your spouse would have to start putting $10,500 a year into your RRSPs at age 35. These calculations are based on a 5% annual return and yearly contributions that rise 2% annually to keep pace with inflation. Don’t fret if this timetable sounds ambitious. Even if you can’t come up with $10,500 every year in your 30s, you’ll probably be able to catch up in your 50s with larger contributions. By then, your mortgage should be paid off and the kids finished university. That’s when you need to get really serious about putting money into RRSPs if you want to make that $500,000 target.

AGE | VALUE OF RRSP
25 $0
35 $0
45 $121,500
55 $283,500
65 $500,000

17 comments on “How much should I have in my RRSP?

  1. Why is it necessary to have those savings in a RRSP which will have taxable withdrawals? Where do we get the multiplier 30, what is this based on? Most people will not have a company pension to retire on, nor will they receive the maximum amount in CPP benefits.
    And.. after all the writings about the miracle of compounding interest we are now suggesting to forget about savings of any kind until age 35???

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  2. Yes, it is true that when you make an RSP contribution you get an immediate tax deduction and you benefit from tax sheltered growth (or more likely loss).But an RSP is one of the worst investments due to taxation at the time when you need to use the money or you die.The concept was sold on the premise of get a tax break today and then in retirement you will be paying less tax.The reality is today is the highest tax that any retiree is paying but tomorrow will be worse.Explain to a family why 60% of their parents estates who invested heavily in RRSP's was lost or stolen to taxes and fees.

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    • You could not say it any beter. It is a government controled extortion. I stoped mine a while ago,saved 40000, before it was nothing. For 5 years we did not make any money.Thing I don't understand,how can government charge 10_ 20 _% incomtax when you retire. So they give you 3% over all and give you panishment for it.

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      • I work and have a home based type business (party plan) and do prttey well with it, as well as my regular day job which I have had to cut back on hours because the home business is doing so well.I file together, using a schedule SE for my home business to take the deductions out such as mileage (a HUGE deductions) airfare and hotel for training events, and usually after the mileage is calculated I wind up owing nothing on my home based business. I also deduct postage and advertising expenses, and office supplies, demo products, and any losses such as damaged or broken items I write them off.I do travel quite a distance to do my parties, several times a week.You cannot deduct clothing or dining expenses, or fluff your deductions, it will set off a big red flag, so be very careful that you only deduct what you actually can legally. Was this answer helpful?

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      • I wholeheartedly agree. Retired people should be charged like any other person in Canada who earns the same income. It’s called tax equality. No more BS with OAS and age-related tax credits.

        In case you missed it, that was sarcasm. Not only do you get free money for living to this age, you get whackloads of breaks such as senior’s discounts, pension credits, OAS, property tax deferral, and you’re STILL COMPLAINING that you get taxed less than someone who has the same income as you but may be working three jobs just to earn that income. Nice.

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      • Your whole comment is just complete nonsense. The government doesn’t control RRSP. An RRSP is just a type of tax-deferred investment account. You can have complete control over the account or have a professional manage it for you. I am surprised that you saved 40,000 in such an account and didn’t realize this. I don’t see how “extortion” fits into it – I don’t think you know the meaning of the word because it makes no sense in your comment.

        RRSP can be useful to those that retire in a lower income tax bracket than when they were working. They would contribute to the RRSP, get the tax deductions in the higher income tax bracket, and then pay from the lower income tax bracket when they retire. The smart ones would take the tax deductions and pay down debt – such as a mortgage, meaning they can own their home faster.

        For those in the lower income tax brackets, RRSP accounts may not make sense. A TFSA account would probably be more benficial for them.

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  3. It is all a big con perpetrated by the major financial institutions and the government to extract more money out of us. RSPs very rarely, if ever, provide the benefits as advertised, It always amuses me when on your tax information it informs you the maximum you can contribute to an RSP. If I had that amount of disposable income I would not put it into such a flawed investment.. You can be sure that if the government is involved in any investment it will never benefit the investor.

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    • Please tell me that you are aware that the ” government controlled flawed investment” as you name it is not government controlled. Almost any investment, be it a stock, mutual fund, index fund etc, can be put into an RSP. A RSP is simply an account, no different than your savings or chequing account that holds your money\investment.

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  4. Pretty awful advice.
    Start investing as early as possible. Do it now!
    If you are in your 20′s, INVEST NOW. Invest what you can, when you can. Have the accounts open (TFSA, RRSP) and contribute to them. Even investing small amounts will accumulate and you will notice, and this growth will encourage you to invest more. If you are in your 30′s, INVEST NOW.
    The power of compound interest will either work for you or against you. Let’s make it work for you.
    And as for comments criticizing RRSPs, most seem woefully ignorant. True, RRSPs may not be appropriate for everyone (anyone with a sizable pension, anyone who will still be earning an income in their early 70′s, as examples). However, anything can go in an RRSP: Stocks, Bonds, ETFs, Mutual Funds, GICs, Cash. You name it. I suspect most of the issues with RRSPs are actually issues people have with the mutual fund industry (especially in Canada).
    There are other types of accounts that are also annoying and stupid, like Locked-In Retirement Accounts.
    How about contribute to your RRSP, then invest the tax refund in your TFSA?
    The article also fails to mention that OAS is an income-tested benefit, and that having RRSPs might reduce what you collect in OAS. This is the worst thing about RRSPs, as it generally affects lower income earners the most (the ones who did the “smart” thing and investing in RSPs their whole working career).

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    • I am along the lines of starting early. You should try to pay your debt down along with building wealth inside of tax havens such as rrsp accounts. Yes, there are pros and cons about these accounts but thats irrelevant in my opinion. Point being that starting to save early is wise and one should balance debt repayment with retirement planning.

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  5. You should start saving for your retirement as soon as possible, NOT when you’re in your 30s! I’m 29 (my birthday is actually today!) and I’ve been saving for my retirement since I was 19 years old. I didn’t have a lot of money then (living away for university can do that to you) but I saved a little bit at a time and was able to use what I saved toward the purchase of my first home a couple years ago. I’m working on saving back up what I used for my home purchase, and will continue to save.

    Don’t get me wrong, I appreciate the article outlining how much people should aim to have for retirement but the message should really be to save whatever and whenever your’re able, and to do it from as young an age as possible. There are benefits to saving for 35 years, as opposed to 25 years! Who wants to be worried about saving for their retirement in their 60s?!

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    • Happy birthday Michelle! And we wholeheartedly agree, when it comes to saving, the earlier the better. But it’s never too late to start!

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  6. hi…This is judy Ramsahai…My deaf on lady..I ‘m not speak…I was for you too called… 53 year old…. My pian heart…. I was gave me money Goverment… Tax icome… I’m sad bye

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  7. I disagree with earlier the better. Priority should be to keep debts down before even thinking about putting money into an RRSP.

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  8. Well not so good for those of us who are layed off, downsized, restructured at age 50 or so as I and many colleagues have found. I need to cash out to survive as there is no work other than min. Wages and to boot many at this age are in middle of divorces.

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    • Then get a minimum wage job. If you don’t want to dip into retirement savings then go get a job. When you get laid off and aren’t able to get a job in your field then you need to do anything to cover the bills. I’m so sick of people crying about loosing their job and refusing to find work where they can. Get a job while you’re looking in your field. Suck it up buttercup.

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  9. I understand that this article is about RRSPs, however it does give the impression that you don’t need to start saving until you’re in your 50s! Which is extremely poor advice.
    The benefit of an RRSP is a tax benefit, when your income is higher and that income is in a higher tier of our tax system, that is the time you want to contribute. There is no point to contribute to your RRSP when you’re already in the lowest tier. But rather when you’re income is higher.
    I feel this article makes it sound as if you don’t need to save for retirement whatsoever until you’re 35. When you should really be contributing to your TFSA during those early earning years, and into an RRSP when you’re in the higher earning years.
    Poorly written and I only hope that someone looking for advice doesn’t look at this and consider it as advise because they’ll be screwed if they do.

    Reply

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