A Money Coach in Canada

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Editor’s Note: I wrote this for a newspaper about 5 years ago. I don’t imagine many of the stats have changed and the last paragraph – does it apply, or does it apply?
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old-and-gleaming

Oy Vey. It’s RRSP Time. They tell me I’ll need about a million to retire in comfort, but I figure if I just use TransLink til death, no longer need to buy pantyhose for work, and holiday on SaltSpring instead of, say, Tuscany, I only really need half-a-million. $500,000. Saved. Ummm, let’s see: On my typical middle class salary that would take me about ten years or so, if I don’t eat, shelter myself and if I cancel Tier Three Food TV (since I won’t be eating). Then again, I could just plan to work til I drop. Or buy more lottery tickets.

There actually are a handful of people who max their RRSP contributions. I’m not one of them (hello? I have my own business?) This is for the 66% of us British Columbians who didn’t contribute at all, according to Stats Can (and for the record, the 34% who did contribute only scraped together $2,600 on average). We’re the ones who have mortgage or rent payments, the size of which would buy a gold-plated house in any other city. We have childcare payments. Student Loan payments. Car payments. Line of Credit payments. And then the washing machine breaks. So that extra $1,000 monthly RRSP contribution comes from … where, again?

What are we to do? A few ideas:

1. Define our own terms for retirement. How will our cash flow needs mesh with the rest of our financial picture? For example, will we own a home by then? In what ways might our expenses decrease? Are we striving for an “annual-golfing-holiday in Palm Springs” style retirement or would we be content with something simpler?

2. Do the RRSP Thing anyway. It’s tempting to despair on the whole RRSP project. However, all the talk about tax-free, compound interest is for real. Don’t be intimidated by all the literature throwing around obscene suggested-$1000/monthly-contributions (I mean, honestly!). I started with $25.00. Trust me: your few dollars will start to gain interest, which gains interest, which gains interest etc. etc. Your initial few dollars will start to look surprisingly decent. Furthermore, again and again I’ve seen people make small efforts, and be it God, the Universe or sheer luck, through some mysterious means the small efforts result in disproportionate reward. Even if only standard returns come, saving for retirement, once started, will slowly but surely accumulate.

3. If needed, take out a loan. This will force savings (I still resort to this tactic. My willpower is as susceptible as anyone’s) and at these interest rates you’d be hard pressed not to make a net gain. RRSP loans are usually easy to obtain, since they’re backed by the asset of the RRSP, so if you’re ‘credit challenged’ still give this a go.

4. Get Creative. We don’t have a lot of models for preparing for retirement beyond accumulating huge income-yielding assets. But there are other means. One couple I know very happily moved to a developing country where the exchange rate keeps them in high style. Church groups and other organizations have come up with interesting co-op living solutions. There could be many more ways to ‘do retirement’ that don’t require a million in the bank. (“Logan’s Run” solution is not one of them!)

These are a few approaches to the daunting task of preparing for retirement. One last word. All the graphs and investment charts in the world cannot convince me we live in a predictable world. Making peace with uncertainty in general and retirement in particular may be the most freeing way to think about retirement. Within that uncertainty, be thoughtful, absolutely. But be panicked if you cannot make the industry’s recommended contributions? Not me. I have payments to make on a sweet, little condo. A washing machine to repair. And Food TV to pay for, of course.
Readers, if you’re bold, tell us about your RRSP habits – do you always max out? Have you ever? Never? Why/why not?

About the Author


Imagine if Canadians were known for being all over their money. Engaged. Proactive. Getting out of debt. Savvy. Saving. Generous. Nancy wants to help. Nancy started her own journey with money over 15 years ago, and formed her company “Your Money by Design” in 2004 to help others along the same path. It’s not the usual financial advising/investment stuff. It’s about taking control of day-to-day finances –managing monthly cashflow effectively, spending appropriately, getting out of debt, saving. If you're ready to take control over your finances, pop by her business site, YourMoneybyDesign.com

4 Comments

  1. RRSP loans… better pay off any other debts, if you have them first!

    [Reply]

    Jan 29, 2009
  2. Traciatim

    I’ve never maxed out my RRSP, but I participate in my companies 100% match (6% of salary). So if I could get 5K in the TFSA, my 12% in to an RRSP, and I own a house that will be paid off long before retirement. I doubt I will need much at all in retirement. My CPP, OAS, RRSP, TFSA, and low cost of living will all add up to comfortable living.

    I think buying a house and actually owning it is a huge factor in comfort in retirement that most people miss when comparing renting vs owning. Rent will increase at inflation forever, but your home cost is locked in to purchase year dollars. Plus if you believe that you should benefit from your hard work instead of your family, at 65 you can reverse mortgage for extra fun money.

    Persistence is the key to a comfortable retirement. No fancy loans needed.

    [Reply]

    Jan 30, 2009
  3. Having been a student until I was 29, I was really behind on retirement savings. Where behind = no retirement savings and a huge student loan debt. So my current plan to try to sock away a bunch in my pension (I put in 6%, my employer puts in 6.1%) and RRSPs, while trying to get the student loans paid off before I hit 40. Continuing to live the poor student lifestyle (basement apartment, clothes only from thrift stores) helps.

    Beth’s last blog post..R.I.P. T-Shirt Hell.com

    [Reply]

    Jan 30, 2009
  4. Mark Boody

    Well Nancy, I’m one of those rare & strange ducks (don’t you dare add an editorial comment here, lol!) who has maxed out my RRSP for about the last 18 or 20 years. But before you think I’m an overachiever, let me give the real story. The first 5 years I made $15,000 or less per year as a cheap yet comfortable semi-retired 20 something “lazy bum”. The math was: ~$150 per month maxed me out for contributions; not so hard when you think of it as $40 a week. Dirt cheap rent ($475 incl. utilities) & a fabulous roommate (paid 1/2 the rent) made all the difference to that lifestyle!

    The last 14 years, I’ve become “responsible” with a full-time “real” job, but the company pension plan (RPP) leaves me only ~$3000 per year RRSP room (RRSP limit minus all RPP contributions) so my $300 per month contribution has left me over contributed & paid up on my Home Buyers RRSP $5000 withdrawal made 13 years ago. It wasn’t that hard to double my RRSP contribution when I started my “real” job with triple the income. The secret here was arranging ALL my savings debits by paycheck #2 so I never knew I had triple the income that first year before I lost the roommate & bought a condo.

    The other big financial secret for me has been not owning a car. Yes, working for city transit does give me free rides; but transit still sucks. But working the hours needed to pay for a car (purchase, insurance, gas, maintenance, etc.) sucks even more, and it takes more hours of work to pay for the car than the car would save me in time! Always do the math & most answers are obvious – what’s the cost, what’s the reward. And cost is more than just money! And the reward is more than just money too!!

    [Reply]

    Feb 01, 2009

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