How much to Your RRSP?
Posted by Gail | Filed under Retirement Planning
Are you planning on contributing to your RRSP for 2014? Will you make a smaller contribution than you did last year? According to the Stats Man, even as our spending on crap has gone up, RRSP contributions have been on a steady decline. Fewer people are contributing, and the amount we’re socking away is falling too. In fact, we only used about 24% of those eligible contributed to an RRSP in 2011. And we socked away just 4% of what we were entitled to put away in RRSPs.
According to two big banks, fewer Canadians are planning to put money into an RRSP this year. They say they can’t afford it. That’s what happens when you prioritize spending over saving and don’t pay yourself first. The Wealthy Barber must be cringing!
Scotiabank and Bank of Montreal both say people have other expenses, like car payments, credit cards and lines of credit, that are preventing them from making a contribution.What’s I find interesting is the discrepancy in their surveys. Scotiabank found that 31% planned to contribute to their RRSP, down from 39% last year while said 43% of those surveyed planned to contribute, down from 50% in 2013. Since they always claim their surveys are coronet to within a hamster’s whisker, does that mean Scotia’s customers are more indebted than BMOs?
Regardless of the excuse, this unwillingness to use an RRSP to save for retirement totally blows my mind. The tax-man wants to hand you back money you would be paying in taxes and you’re going to let him keep it? Really? You can’t find a single thing – pay down debt, boost your TFSA, go on vacation – that you’d rather do with that “tax” money?
If you think that because you can’t dump a whack of money into an RRSP it’s not worth thinking about, you’re a dope. Every dollar you save now, is a dollar plus growth that you’ll have when it comes time to hang up your spurs.
Put $50 a month into an RRSP, and give your money 25 years to grow at an average return of 5% over the long-term and you’ll almost double your money: you’ll have put away $15,000 but you’ll end up with $29,775.
Give yourself more time, and the results are even better. Let’s say you start contributing at 25 and do so until the normal retirement age of 65. You’ll have $76,301 just by socking away $600 a year. Com’on, you can find $600 a year.
Up your contribution to the mean contribution for 2008 — $2,680 – and in 25 years you would have $133,394. In 40 years you would have $341,829.
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 $50 a month and aim to get to the $233 a month you need to meet the median contribution amount. Then keep going from there.
You can use your tax refund to boost next year’s RRSP contribution. That’s a great way to build up your savings. Allocate half of your next raise to savings. And you know all that money you’ve been wasting on some bad habit? Why not use it instead to build a future.
Plan now to start contributing month, and this time next year you’ll have formed a habit that’ll do you good for years to come!
I think one of the reasons people may be using RRSPs less is because they’re funneling money to their TFSAs… with limited resources for saving, something’s gotta give. The government, of course, is laughing all the way to the bank. With the switch to using TFSAs, they’re issuing fewer refunds; that’s more tax money in their pockets to spend telling us what a great job they’re doing. In the mean time one of the best savings vehicles languishes. Yes, there are people for whom a TFSA makes a lot of sense. But once you’re making more than $40K a year, if you’re not using an RRSP it’s likely because you’ve bought the claptrap about RRSPs being crappy. They’re not. They are stellar and they’ve helped me save for my future. Don’t just react and not contribute; crunch the numbers and see for yourself.