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  • Feb 23rd, 2010 4:46 am
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[OP]
Member
May 22, 2009
415 posts
8 upvotes
Barrie

Am I saving enough?

Age: 25
Approx Wage - $40,000 year
Pension - 14% self and 4% employer (current balance $12,000 in fund) - aggressive funds
RRSP current balance $12500 - Mainly GIC and Money market

After monthly expenses I have around $600 left over (however I rent and would like to own one day)

Should I set up an addition non reg. account and buy mutual funds each month for around $400? As for my retirement am I on the right track?

Thanks
21 replies
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Oct 15, 2007
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HondaScott wrote:
Feb 20th, 2010 9:46 pm
Age: 25
Approx Wage - $40,000 year
Pension - 14% self and 4% employer (current balance $12,000 in fund) - aggressive funds
RRSP current balance $12500 - Mainly GIC and Money market

After monthly expenses I have around $600 left over (however I rent and would like to own one day)

Should I set up an addition non reg. account and buy mutual funds each month for around $400? As for my retirement am I on the right track?

Thanks
experts say to save at least 10% of your gross per month
Everything has been said before, but since nobody listens we have to keep going back and beginning all over again. - Andre Gide
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Feb 9, 2003
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Langley
Your 18% pension is more then enough. I wouldn't save anything more then that for retirement, unless you want to sacrifice now so you can retire early.

Of course, if you're saving for a house AND retirement, then there's nothing wrong with saving extra.
Newbie
Feb 16, 2010
11 posts
1 upvote
Ottawa
If your goal is home ownership, I would stop making RRSP contributions, instead move those contributions to a TFSA and save for your downpayment. Direct some/all of that 400 (you've purposed to a non-reg MF) to ensure your maxing out the 5k limit on the TFSA (maybe roll that 5k into a TFSA GIC).

Once you've purchased a home, continue to use that RRSP money to pay down your mortgage quicker maybe 12-15yrs instead of 25.

Even with a partial pension, I wouldn't make RRSP contributions until my house is paid. Once the mortgage payment is free and clear, use that for your RRSP (you should have a large amount of contribution room by this point). Use the tax return and put that into your RRSP as well.

My .02
Craig
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May 18, 2004
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eh, you are 25 and earning 40k and putting a lot of money towards retirement??

honestly i think you are waaaay too concerned about retirement.

what about just saving towards a downpayment and personal advacements for your job.
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Jun 29, 2009
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Happyvdubber wrote:
Feb 20th, 2010 10:10 pm
I would stop making RRSP contributions, instead move those contributions to a TFSA and save for your downpayment.
I believe RRSP would be more advantageous esp when you are considering house downpayment so you can make use of the HBP
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Oct 15, 2004
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Why would he want to stop contributing to RRSP? If he is a first time buyer, he can borrow his RRSP for down payment anyway.

Further, say if the mortgage rate is 4%, and the OP is confident to get 8% on investments. It would make more sense to invest than to pay down the house.
Happyvdubber wrote:
Feb 20th, 2010 10:10 pm
If your goal is home ownership, I would stop making RRSP contributions, instead move those contributions to a TFSA and save for your downpayment. Direct some/all of that 400 (you've purposed to a non-reg MF) to ensure your maxing out the 5k limit on the TFSA (maybe roll that 5k into a TFSA GIC).

Once you've purchased a home, continue to use that RRSP money to pay down your mortgage quicker maybe 12-15yrs instead of 25.

Even with a partial pension, I wouldn't make RRSP contributions until my house is paid. Once the mortgage payment is free and clear, use that for your RRSP (you should have a large amount of contribution room by this point). Use the tax return and put that into your RRSP as well.

My .02
Craig
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May 20, 2003
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Is there that much more RRSP room left after the pension adjustment? I'm thinking RRSP isn't really an option for OP because 18% is going into the pension already.

Depending on the employer, the funds in the pension might be fee-heavy. Make sure the MERs are reasonable, otherwise I'd contribute the bare minimum to get the employer match and invest the rest in a self-directed RRSP somewhere else (using e-funds or ETFs). With up to 40 years before retirement, fees can really eat into your savings.

The $400 per month into mutual funds... how long before you need the money? What kind of funds are you thinking of?

Max out your TFSAs if you haven't already.
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Feb 1, 2005
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I think you're in great shape for a 25 year-old. Keep on the track you're on and you'll probably be able to retire a bit earlier too. :cheesygri

Key is to not get into bad habits - this means both over-saving and over-spending... over-saving means not enjoying life with the means you have, and over-spending means getting into financial trouble which could mean preventable sleepless nights.
Deal Fanatic
Jul 1, 2007
8202 posts
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With that income and given the pension contributions you're already making, you shouldn't be contributing one red cent to your RRSP.

Dump that extra $600/mo into a TFSA until you reach your maximum (currently $10,000).
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Feb 9, 2003
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Langley
Thalo wrote:
Feb 22nd, 2010 12:18 am
With that income and given the pension contributions you're already making, you shouldn't be contributing one red cent to your RRSP.

Dump that extra $600/mo into a TFSA until you reach your maximum (currently $10,000).
When you're saving for a house, then you're better off to put it into your RRSP until you reach 25k.
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Jul 1, 2007
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i6s1 wrote:
Feb 22nd, 2010 12:37 am
When you're saving for a house, then you're better off to put it into your RRSP until you reach 25k.
-Put into an RRSP with a gross income of $40K = reduction of income at the 15% federal MTR (probably about the same or lower than what will be paid during retirement, thus no benefit over TFSA).
-Withdraw under HBP, no tax
-Be forced to contribute back to RRSP over the next decade, during which time your income will likely go up but you won't get the benefit of tax deferral (on the HBP recontribution, at least).

vs.

Put money in TFSA. Earn interest tax free. Withdraw tax free and not have to re-contribute. Concentrate on building RRSP in later years, at a higher MTR.

That being said, after the OP has filled up the TFSA to the max, then additional savings should be made toward the RRSP to eventually be withdrawn under HBP.
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Feb 9, 2003
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Langley
Thalo wrote:
Feb 22nd, 2010 1:34 am
-Put into an RRSP with a gross income of $40K = reduction of income at the 15% federal MTR (probably about the same or lower than what will be paid during retirement, thus no benefit over TFSA).
-Withdraw under HBP, no tax
-Be forced to contribute back to RRSP over the next decade, during which time your income will likely go up but you won't get the benefit of tax deferral (on the HBP recontribution, at least).

vs.

Put money in TFSA. Earn interest tax free. Withdraw tax free and not have to re-contribute. Concentrate on building RRSP in later years, at a higher MTR.

That being said, after the OP has filled up the TFSA to the max, then additional savings should be made toward the RRSP to eventually be withdrawn under HBP.
You only get a deduction on the federal portion of your taxes? I thought you you'd get around 25-30%, because you reduce the federal and provincial taxes.

At 40k, he's also pretty close to the next tax bracket, so things could change within a year.

Anyway, how much is the 15% tax refund worth now as a down payment? Because of CMHC fees, the marginal cost of borrowing more then 80% of the house is quite high. By reducing your CMHC fees, and adding ~$3750 to your down payment, you're significantly reducing the amount of interest that you pay.

For example, on a $400 000 house, if that extra $3750 means that he goes from below 10% to above 10%, then he saves $3000 on the CMHC premium. (Although admittedly, if that money doesn't allow him to cross a threshold, he saves nothing on the fees.)

Comparing 2 scenarios, both with the same house and the same monthly payment, there will be a shorter repayment period with an extra $6750 downpayment, and the interest saved will probably triple that amount.

I'd take the money now and have the house paid sooner. If I'm going to be rich in retirement, then I'd just retire a year or two early, and live off the RRSP before the pension kicks in. Then I'd pay minimal taxes on the RRSP withdrawal, and retiring early is pretty nice. Another option if you're in a high bracket, is to borrow against the RRSP instead of withdrawing from it. You'd leave your estate with a nice tax bill, but you can't take it with you. There are options for reducing your taxes in retirement.
[OP]
Member
May 22, 2009
415 posts
8 upvotes
Barrie
I have additional cash savings of $12,000 just sitting in 2% savings account. I was thinking about taking that out and dollar cost averaging into a mutual fund tfsa. I was thinking TD Bond and TD Dividend Growth 50/50 each.

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