What age to begin contributing to RRSPs?

[Manhattan]

Typical advice is always the earlier the better. But locking away cash and not having access until retirement which is decades away is not very appealing - having access to cash/capital for other investment/business opportunities is more important earlier in life.

Contributing later also means you're in a higher tax bracket and will have a shorter wait to access it. At what age do you beyond ballers contribute to RRSP if at all?

[cet]

I started contributing when i was about 25-26 through work. They had a really good retirement plan that I would have been silly not to have taken advantage of.

[Sugarphreak]

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[killramos]

Personally waiting until ~25.

The tax doesn't cost me that much right now and I contribute it all to TFSA. So I am not paying tax on growth anyhow.

Figure I'll wait until after my designation and make real money.

Already bought a house so that's out of the window.

Also fiancé is still in school so able to transfer some education credits. Last year I was in school still which worked well.

I don't like rrsp's anyhow. TFSA is almost as lucrative and much more flexible. To each his own though.

Also as a note my employer savings plan does not require deposite into a registered account. If your employer does for matching that would be a different ball game altogether.

[LUCKYSTRIKE]

Sooner the better. By the time our generation is setup for retirement, factoring in inflation and all that, I wouldn't be comfortable with less than a million in the bank.

Lots of companies have a matching RRSP contribution (up to a certain %) thing in place, I'd take advantage of that for sure. Plus its tax deductible. So, win win.

[LUCKYSTRIKE]

Originally posted by killramos
Personally waiting until ~25.

The tax doesn't cost me that much right now and I contribute it all to TFSA. So I am not paying tax on growth anyhow.

Figure I'll wait until after my designation and make real money.

Already bought a house so that's out of the window.

Also fiancé is still in school so able to transfer some education credits. Last year I was in school still which worked well.

I don't like rrsp's anyhow. TFSA is almost as lucrative and much more flexible. To each his own though.

Also as a note my employer savings plan does not require deposite into a registered account. If your employer does for matching that would be a different ball game altogether.

Rockin an m235i pre 25? #ballin #outtacontrol :)

[Manhattan]

Originally posted by Sugarphreak
Better to get started ASAP... the main reason is so you can get enough for the first time home buyers program whenever you want to make the switch from sucker to owner.

I've added to mine pretty casually after I bought my place... I think I've only got about 140K so far in it. Practically worthless for actual retirement.

I agree 100% on the HBP. It's free money.

If you're under 40 with that much in you RRSP then you're way ahead of the curve. Although I wouldn't feel comfortable with that much locked away for so long. Opportunities might pop up where I need access to cash and the penalties to withdraw is a bitch.

[Manhattan]

Seems like a lot of people overestimate how much they'll need in a RRSP to retire. Having a million+ in a RRSP isn't necessarily a good thing because you'll still be taxed on it as regular income when you withdraw in your retirement. If you're making big withdraws you'll be taxed at a higher tax bracket.

RRSP should be used as a surplus on top of CPP pensions, work pensions, and old age security in addition to any other passive income you might have.

[LUCKYSTRIKE]

I might be, but I am concerned about inflation.

A car 40-50 years ago was what, 5k? Around there? What is the cost of an average car now, 30k? Low end. That's a factor of 6.

That's just one example. Work + CPP + OAS will probably keep you afloat, but if you actually want to enjoy retirement then you are gonna want that money in the bank.

[JamMan23]

Originally posted by Manhattan


I agree 100% on the HBP. It's free money.

Do you know how the HBP works? It's not "free" money, you are simply allowed to withdraw money from your RRSP for a down payment, and have to pay it all back within 15 years.

[Sugarphreak]

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[HiTempguy1]

Originally posted by Manhattan
Seems like a lot of people overestimate how much they'll need in a RRSP to retire. Having a million+ in a RRSP isn't necessarily a good thing because you'll still be taxed on it as regular income when you withdraw in your retirement. If you're making big withdraws you'll be taxed at a higher tax bracket.

RRSP should be used as a surplus on top of CPP pensions, work pensions, and old age security in addition to any other passive income you might have.

So? (in regards to the taxation). At the end of the day, it is a proper financial vehicle to do retirement savings with. It might not be THE BEST, but it is one of them. I don't mind paying tax on money I've earned, and at the end of the day, it will probably be at a lower tax bracket than what I initially earned it at which is nice.


Originally posted by LUCKYSTRIKE
Sooner the better. By the time our generation is setup for retirement, factoring in inflation and all that, I wouldn't be comfortable with less than a million in the bank.

Lots of companies have a matching RRSP contribution (up to a certain %) thing in place, I'd take advantage of that for sure. Plus its tax deductible. So, win win.

This this this. On top of that, with a million+ in the bank by 55, you should be bringing in ~$60k/year in interest. Live off the interest, pass the money onto your kids. Wealth building! (Edit- As far as I can tell, between the girlfriend and myself, we should be pretty close to an equivalent of almost $2mil by the time we retire. My pension, plus $1k/month of investment savings between the two of us).


Originally posted by killramos
Personally waiting until ~25.

The tax doesn't cost me that much right now and I contribute it all to TFSA. So I am not paying tax on growth anyhow.

Also as a note my employer savings plan does not require deposite into a registered account. If your employer does for matching that would be a different ball game altogether.

All good points. I wouldn't bother starting to save before 25 as there are more important things that need immediate attention (like paying down student loans, buying all of the things you need in life to live/function in society, etc).


Originally posted by LUCKYSTRIKE


Rockin an m235i pre 25? #ballin #outtacontrol :)

At first, I thought the same thing... and then realized I've been making $700 a month payments on a car since 22. Could have afforded a m235i on $700/month over 6-7 years as well.

[Xtrema]

Originally posted by Sugarphreak
This is true, you don't want everything in there. I figure a safe amount is around 700K, then have other sources outside of the RSP.

I won't tie RRSP to a set number anymore. 10 years ago, I thought $300K is sitting pretty. Now it's $700K. When I do retire, it's probably $2M.

It's still good to invest early even if tax benefit in minimal for the compound effect due to tax refund and sheltering going forward.

CPP and RRIF will probably kicks in around 70 (for people who are 40 right now). So RRSP for me is simply providing the amount of years I can blow before I hit 70. If I have $1M and it takes $100K/yr, that means I can retire at 60. $50K/yr? Retire at 50.

I don't plan on retire on RRSP/RRIF. CPP and my investment outside of RRSP will take care of that. There is no point being rich and old.

[Sugarphreak]

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[HiTempguy1]

Originally posted by Sugarphreak


I didn't take into account CPP, simply because I don't think it will be around by the time I retire.

CPP actually makes fat stacks for the gov, it's been touted around the world as a model for government ran pension plans...

[nzwasp]

30 when i became a permanent resident of Canada. My wife seriously started contributing in 2008 when she was 27. She has 130K I have 15K but then again I make F all, and she makes triple my income.

my wife is my long term financial plan, and if that falls through I'll move to somewhere cheap and start over.

[Twin_Cam_Turbo]

I started the second I turned 23, right after buying my townhome and first brand new car. Just a minor contribution of $75 a week right now.

[Disoblige]

Started contributing when I was 21, used most of it on a home purchase through HBP and now still contributing regularly (10% of my pay cheque's worth).

[Sugarphreak]

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[Twin_Cam_Turbo]

Originally posted by Sugarphreak


Going to go out on a limb and assume your parents are loaded... so you probably don't need a retirement plan, lol

Sadly, I think my parents retirement plan include mooching off of me :(

I never planned that but they assure me they are leaving me something. The thing is though I would rather see them live to be 100 and leave my nothing then pass away earlier and leave me wealth.

[Feruk]

Originally posted by Sugarphreak
You get to use tax free money to pay for your first place, then you pay it back to yourself with zero interest... it is basically 30% free money compared to just using that cash to buy a place directly.

There is no way in which this is a bad deal
You forgot to incorporate the fact that when you pay the money back into your RRSP over 15 years, you get no tax benefit for it. Therefore, amount wise, as long as you plan to contribute to your RRSP at some point in your career, it makes NO difference whether you withdraw from HBP or just use cash. You're not "30% ahead", you simply accelerate when that money comes to you, but it's certainly not free.

It's really only got 4 effects:
1) Lets you put down a bigger down payment. This is only positive if it gets you over 20% IMO.
2) Forces you to pay a second bill other than just your mortgage in the form of repayments. Negative.
3) Makes houses more expensive as it creates larger pool of buyers. Negative.
4) Steals away any compounding your money would make in the RRSP tax-free. Negative.

IMO, unless the HBP makes the difference between whether you have to pay mortgage insurance or not, it's not worth it. Just another way the government lets us buy stuff we can't afford.

[nzwasp]

I wonder how much the average canadian from 20 - 30, 30 - 40, 40 - 50 etc has saved up in RRSPs.

[msommers]

I can't see CPP being around in 30 years when I retire. Baby boomers haven't really retired yet after losing their shirts in the last recession.

[nzwasp]

I bet you baby boomers were saying the same thing 20 years ago when interest rates were at all time highs as well yet here it is today.

I reckon it will be here but you will have to be 70 before you can get it.

[kenny]

Started throwing $100/month towards RRSPs when I was 18-19? I set it up and forgot all about it. Now, I contribute just enough to maximize the employer matching portion. Free money FTW!

[Manhattan]

Originally posted by Xtrema
There is no point being rich and old.

Yeah I don't wanna be one of those old geezers driving a ferrari. Being old and broke is also a sad, sad thing. A boat and vacation home on a lake would be nice. Too bad it takes a lifetime of work to accumulate these nice things when you're not born into wealth.

[Xtrema]

Originally posted by Sugarphreak
I didn't take into account CPP, simply because I don't think it will be around by the time I retire.

CPP will be around but probably won't match inflation needs.

I expect old age and GIS will be gone by the time we are 70. Also, RRSP is designed to be off load government's liability on old age and GIS.


Originally posted by Feruk
IMO, unless the HBP makes the difference between whether you have to pay mortgage insurance or not, it's not worth it. Just another way the government lets us buy stuff we can't afford.

I think in principle, help people to build equity thru ownership sounds great.

In practice, it just artificially creates inflation and only lines the pockets of real estate developers.

I have said many times before, I hate CMHC insurance and HBP. It puts people into the market that may or may not be ready for it.

I rather cities build more subsidized housing for people in need instead of throwing money at people.

[killramos]

I think the best thing to do in the general is to have a solid idea of what you want to retire with, when you want to retire. Then have a plan to meet that goal.

Lots of investment companies have tools where you plug in all your details and spit out a retirement income (you even get to plug in when you think you will die :rofl: ).

I would do some sensitivity analysis on investment returns to see what your exposure is or what retiring early or late will do for you. Most of these will also account for tax paid etc.

Rainy day fund outside of registered is also key imo.

And as for the balling out of control :rofl: :burnout:

[Darkane]

Started at 25 with company RRSPs.

Trying to max them but I have lots of back-pay room.

As I contribute I take the tax return and plug it into the mortgage. I should probably re-invest that cash, but mortgage freedom young seems so sweet.

[killramos]

Originally posted by Darkane
Started at 25 with company RRSPs.

Trying to max them but I have lots of back-pay room.

As I contribute I take the tax return and plug it into the mortgage. I should probably re-invest that cash, but mortgage freedom young seems so sweet.

I would love to be mortgage free to, but 3% interest is so cheap... Much better to just invest then pay it down when rates rise.

Feels dangerous lol, at this point car loan is higher interest so been working on that one.

[max_boost]

Originally posted by Darkane


As I contribute I take the tax return and plug it into the mortgage. I should probably re-invest that cash, but mortgage freedom young seems so sweet.

Yup. So close. After that everything is just gravy. :drool:

[Xtrema]

Originally posted by killramos


I would love to be mortgage free to, but 3% interest is so cheap...

Only if your amortized period is 10 years or less or mortgage is small. 25 year mortgage will cost 40% of borrowing amount in interest payment even at 3%.

I.e. $300k @ 25 years will cost $125k in interest.

[killramos]

Originally posted by Xtrema


Only if your amortized period is 10 years or less or mortgage is small. 25 year mortgage will cost 40% of borrowing amount in interest payment even at 3%.

I.e. $300k @ 25 years will cost $125k in interest.


Originally posted by Xtrema


Only if your amortized period is 10 years or less or mortgage is small. 25 year mortgage will cost 40% of borrowing amount in interest payment even at 3%.

I.e. $300k @ 25 years will cost $125k in interest.

I don't think that's the right way to look at it.

If your loan is 3% and you are making 7% it is better for you to invest the money every time. You are up 4% compounded. Amortization period does matter as rate of return and interest are calculated on the same period.

The only thing that matters is if your borrowing rate rises. That eats into your 4%.

However for 99% of people it is a good idea to pay down your debt.

[BrknFngrs]

Originally posted by killramos




I don't think that's the right way to look at it.

If your loan is 3% and you are making 7% it is better for you to invest the money every time. You are up 4% compounded. Amortization period does matter as rate of return and interest are calculated on the same period.

The only thing that matters is if your borrowing rate rises. That eats into your 4%.

However for 99% of people it is a good idea to pay down your debt.

Agreed on paper but there is other considerations in real life
- interest savings on loan repayment are "known", 6% ROI won't be guaranteed (and may incur taxes which will eat into the return)
- few meaningful investments will allow contributions per pay period without incurring a bunch of costs (as compared to just increasing your biweekly mortgage payment)
- rate increases don't just cut into your future profits above your borrowing amount; your paying interest on the principle that would have been paid off had to just paid down your mortgage faster.

Again, agree on paper with the idea of investing as opposed to paying your mortgage but in practice I'd say it's rarely the best option.

[killramos]

Originally posted by BrknFngrs


Agreed on paper but there is other considerations in real life
- interest savings on loan repayment are "known", 6% ROI won't be guaranteed (and may incur taxes which will eat into the return)
- few meaningful investments will allow contributions per pay period without incurring a bunch of costs (as compared to just increasing your biweekly mortgage payment)
- rate increases don't just cut into your future profits above your borrowing amount; your paying interest on the principle that would have been paid off had to just paid down your mortgage faster.

Again, agree on paper with the idea of investing as opposed to paying your mortgage but in practice I'd say it's rarely the best option.

For sure, though if you are on fixed rate you only have rate changes at the end if agreement at which point you can roll your "invested amount" against the mortgage without penalty.

I was considering this as more of a rolling a big sum into mortgage or investing like a bonus or a tax return. That mitigates the issue of investment costs.

Good point on the taxes, the only retort I have to that is TFSA :bigpimp:

Investing is always risky though. A call you have to make personally.

[GotRice?]

Originally posted by Disoblige
Started contributing when I was 21, used most of it on a home purchase through HBP and now still contributing regularly (10% of my pay cheque's worth).

I am curious regarding this. If you put money into the RRSP and use the HBP for the downpayment. You have X amount of years to pay this back. If you were contributing %5 of your income annually. In order to pay back the amount you withdrew do you have to put the money back in on top of your annual %5 contribution?

[Manhattan]

^

Totally guessing here but any contribution to RRSP should qualify :dunno:

[GotRice?]

Originally posted by Manhattan
^

Totally guessing here but any contribution to RRSP should qualify :dunno:

Dates and Deadlines
•The first repayment starts the second year following the year the withdrawal is made.
•Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years.

http://www.servicecanada.gc.ca/eng/goc/home_buyers_plan.shtml

Reason I am asking is because my company also matches the RRSP contributions. So I am not exactly sure how that works.

[Darkane]

Originally posted by max_boost


Yup. So close. After that everything is just gravy. :drool:

Sweet let's race! I'm gunning for 34 mortgage free.

[dirtsniffer]

Originally posted by GotRice?


I am curious regarding this. If you put money into the RRSP and use the HBP for the downpayment. You have X amount of years to pay this back. If you were contributing %5 of your income annually. In order to pay back the amount you withdrew do you have to put the money back in on top of your annual %5 contribution?

You dictate what portion you would like to put back into the home buyers plan each year.

There is a line on your tax return for total contribution to rsp and a similar line for portion to contribute to hbp. It is up to you how much you put in.

[Redlined_8000]

I started contributing at 20. Sooner the better id think...

[Xtrema]

Originally posted by killramos




I don't think that's the right way to look at it.

If your loan is 3% and you are making 7% it is better for you to invest the money every time. You are up 4% compounded. Amortization period does matter as rate of return and interest are calculated on the same period.

The only thing that matters is if your borrowing rate rises. That eats into your 4%.

However for 99% of people it is a good idea to pay down your debt.

Taxes, fees etc, your break even is 6% return.

Don't forget, $300K mortgage incurr ~ $9K of interest the 1st year. So your break even $9K net.

So unless you have $300K liquid, it's way more than 6% return you are looking at to break even.

[killramos]

Originally posted by Xtrema


Taxes, fees etc, your break even is 6% return.

Don't forget, $300K mortgage incurr ~ $9K of interest the 1st year. So your break even $9K net.

So unless you have $300K liquid, it's way more than 6% return you are looking at to break even.

You can't bring in a mortgage amount into the discussion. It's irrelevant.

If you are talking about paying a grand down versus a grand into your investments it's all superimposed. Remember that there are in many cases fees to paying down your mortgage same as investing. It all depends on the amount.

Your $9000 interest number doesn't matter, you already have to pay that. That isn't going to change.

Mortgages confuse people because they have repayment terms built into them but the interest doesn't care what your repayment terms are. Interest is a simple calculation. % on the amount owed per compounding period, just like return on investment is a simple calculation. % on amount invested per compounding period (ie annual).

Even at your 6% net number.

Which would you choose?

6% return on investment or 3% less interest. 1,000 dollars to spend. 300,000 mortgage.

At the end of the year if you have a 300,000 dollar mortgage you could have 307,970 owing by paying it off, or 309,000 with 1,060 in the bank by investing ( net 307,940 wowing).

Your payments don't matter because you have to make them anyways.

Are you going to argue that buddy with 307,970 owing is better off than buddy with 307,940 owing?

This is one year and the difference compounds.


My point is if you can do better with investments than your interest rate you will always be up vs paying down your mortgage. It's just math.

[BrknFngrs]

Originally posted by killramos
You can't bring in a mortgage amount into the discussion. It's irrelevant.

If you are talking about paying a grand down versus a grand into your investments it's all superimposed. Remember that there are in many cases fees to paying down your mortgage same as investing. It all depends on the amount.

Unless you're getting into excess repayment penalties they're shouldn't be material fees for mortgage repayment for most people.

Comparatively, if you're looking to earn 6%+ interest you're likely looking at equities of some kind and you're going to incur, at minimum, transaction fees on purchase and sale and potentially management fees of some kind depending on the investment type and potentially taxes depending on the investment structure.

Your $9000 interest number doesn't matter, you already have to pay that. That isn't going to change.

I agree that the $9,000 value isn't the right value to benchmark investment performance against; what you need to assess your investment return against is the interest savings associated with the money you made as additional repayments instead of investing.

That being said, that $9,000 dollar is not set in stone and is impacted by repayments that you make. If you maxed out your allowable lump sum payment on the first day of the year, every single "regular" mortgage payment you make in that year will have a larger component of the blended payment amount going to principle as opposed to interest (which reduces the $9,000 in this hypothetical).

Mortgages confuse people because they have repayment terms built into them but the interest doesn't care what your repayment terms are. Interest is a simple calculation. % on the amount owed per compounding period, just like return on investment is a simple calculation. % on amount invested per compounding period (ie annual).

See comments above, mortgage interest is absolutely impacted by payment terms and timing

Even at your 6% net number.

Which would you choose?

6% return on investment or 3% less interest. 1,000 dollars to spend. 300,000 mortgage.

At the end of the year if you have a 300,000 dollar mortgage you could have 307,970 owing by paying it off, or 309,000 with 1,060 in the bank by investing ( net 307,940 wowing).

Your payments don't matter because you have to make them anyways.

Are you going to argue that buddy with 307,970 owing is better off than buddy with 307,940 owing?

This is one year and the difference compounds.

The benefits of additional principle being paid down also compounds, likely with higher frequency, and does so at a known and guaranteed rate

My point is if you can do better with investments than your interest rate you will always be up vs paying down your mortgage. It's just math.

Sure the math makes sense but you have to be looking at the values as end-of-the-day, post tax, cash-in-hand returns and you're also ignoring the risk profile between the two options.

[avishal26]

Originally posted by dirtsniffer


You dictate what portion you would like to put back into the home buyers plan each year.

There is a line on your tax return for total contribution to rsp and a similar line for portion to contribute to hbp. It is up to you how much you put in.

True, but I think there is a minimum yearly repayment = total repayment divided by 15.

[Sugarphreak]

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[Manhattan]

I think the intent of this thread has been sidetracked. The purpose of this thread was to see how everyone felt about potentially locking away money for 40+ years. From the poll results its seems people don't mind it but HBP probably had a big effect on contributions at a young age.

I don't believe in RRSP as much as I used to. Like some others have mentioned, I won't be depending on RRSP as my main source of retirement income. I think it makes a lot more sense to contribute as you get closer to retirement because you'll probably be in a higher tax bracket and you'll wait less time to access your savings. Having a huge RRSP in your 20's or 30's is a waste of your resources IMO. Yes, it means you'll have a massive RRSP at retirement but as someone else mentioned - what's the point in being filthy rich when you're old. That money would've been better used towards enjoying life while you're young or investing into your own business or something where you would have access to it whenever.

[Xtrema]

Originally posted by Manhattan
I don't believe in RRSP as much as I used to. Like some others have mentioned, I won't be depending on RRSP as my main source of retirement income. I think it makes a lot more sense to contribute as you get closer to retirement because you'll probably be in a higher tax bracket and you'll wait less time to access your savings. Having a huge RRSP in your 20's or 30's is a waste of your resources IMO. Yes, it means you'll have a massive RRSP at retirement but as someone else mentioned - what's the point in being filthy rich when you're old. That money would've been better used towards enjoying life while you're young or investing into your own business or something where you would have access to it whenever.

I agree with most of it. Of course if you are doing RRSP, most likely you are an employee. If there is employer matching, you should do those as well.

And RRSP can be a safety net as well in case of work stoppage. It's not necessary just for retirement.

[avishal26]

Originally posted by Sugarphreak


The minimum is fuck all really

I just do the minimum on my repayment; extended interest free loan? Yes please! Then I get a 35% return on the rest of my RSP's.

The Home Buyer plan basically allowed me to get into real estate early, and I've made tons of money and gains on it over the years as a result. If I didn't take advantage of the program, I would have missed boom years and other opportunities along the way.

I'd probably be even less baller than 89 coupe.... scary!

Ya can't complain about an interest free loan... I hope 100% of first time home buyers use it to their advantage.

I wish I was able to use my work RRSPs for HBP ... would've given me more of a downpayment - but then I would have next to nothing in my RRSPs lol

I simply transferred the cash in my personal account to a second RRSP for 91 days :D

[egmilano]

I started at 22 .... A year ago lol i also use my Tfsa. My bro started at 19.

[egmilano]

Double post. Oops

[Sugarphreak]

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