How much to Your RRSP?
Are you planning on contributing to your RRSP this year? Do you know that fewer than 40% of us contribute? That totally blows my mind. The government is standing there waiting to hand you back the money you paid in taxes so you can pay down your debt, make a payment against your mortgage, fund your TFSA, or go on a family vacation and you’re going to let them keep it? Really?
Sometimes people think that if they can’t dump a lot of money into their RRSPs, it’s not even worth thinking about. Not true. Every penny you save today is a penny plus growth that you’ll have when it comes time to punch out at work.
Put $25 a month into an RRSP, and give your money 25 years to grow at just 5% and you’ll almost double your money: you’ll have put away $7,500 but you’ll end up with $14,888.
Give yourself more time, and the results are even better. Let’s say you start contributing at 30 and do so until the normal retirement age of 65, you’ll have $28,402 just be socking away $300 a year. Com’on, you can find $300 a year. That’s less than a dollar a day. Are you seriously trying to convince me that you don’t haven an extra $6 a week?
If you can up your contribution to $2780 (which was the median for 2007) and you give yourself 35 years, you’ll have $263,573. Trim your spending back so that you can find $232 a month for your retirement savings and that’s how much money you’ll end up with. Sure, it’s not a b’zillion dollars… but it’s nothing to sneeze at either.
And what if you were a little more adventurous and could earn even 1% more on your money? Well you’d end up with almost $67,000 more!
Now here’s the typical question I get about earning a 5-6% return: Gail, where do I find anything paying that much interest? Rates are so low right now! Yes they are, and if you use now as your benchmark for the next 35 years you might get a little depressed. But when I quote 5-6%, I’m talking about your return (not just interest) over the very long term. Anybody remember when interest rates were at 18%? Anybody? How about learning more about investing so you can spread your wings and look at other types of investments: stocks, bonds, ETFs.
Don’t be sad about how little you can save today. And don’t let a small contribution stop you from starting. Find the first $25 a month, and grow your contribution from there. You can use your tax refund, part of your next raise, or the money you were wasting on some stupid habit to build a future.