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?
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?