Retirement savings with RRSPs and TFSAs?

The Canadian government wants you to retire with financial security

There are 4 pillars which the Canadian government is using to help make sure you have enough for retirement:

• Workplace savings plans (such as company pension plans)
• The welfare system (old age security and the guarenteed income supplement)
• Canada Pension Plan (CPP) and the upcoming Ontario Pension Plan (ORPP) (both compulsory pension plans)
• Private savings (mainly RRSPs and TFSAs)

Experts recommend saving enough to replace 50-70% of your income to securely retire and live comfortably.

The incentive to save for retirement (a TFSA and an RRSP)

The incentive for Canadians to save is made possible by providing tax advantages to saving for retirement.  The primary ways we do this is through RRSPs and TFSAs.  A Registered Retirement Savings Plan (RRSP) lets you earn interest on your gross income (rather than your after-tax income) and withdraw that growing money at a lower tax rate once you’ve retired.  A Tax Free Savings Account (TFSA) provides you with the ability to earn interest on your savings without paying tax on the interest earned.  More information on TFSAs is available here and information on RRSPs is available here.

Canadian’s aren’t saving enough to retire

There is currently over 1 trillion dollars in unused RRSP and TFSA space. Simply put, Canadians aren’t saving enough. There are two main reasons for this:

• Canadians are underestimating their own longevity.  The average life expectancy in Canada is 89.5 for a woman and 87 for a man.  This means that if you stop earning your income at 65, you will need 24.5 or 23 years of savings… and maybe you’ll live longer than the average
• It’s difficult to save money.  Life is expensive and there are many things you might want now

It’s time to make savings a priority

Putting aside money for short term and long term savings is a necessary part of responsible financial planning.  Take the time to do a financial check-up and review your past financial choices.  This means both saving for retirement, as well as dealing with lingering debt which may be keeping you from maximizing your savings.  Earning interest on your retirement savings while paying 24%+ interest on your credit cards is not responsible financial planning.  Give us a call for a free assessment of your financial situation where we review all of your options relating to your debt, your savings, and your future.