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  • Feb 23rd, 2010 4:46 am
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Newbie
Feb 16, 2010
11 posts
1 upvote
Ottawa
[QUOTE]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.[/QUOTE]

Personally, I wouldn't risk your $12k Depending on your timeframe for purchasing a home (3,4,5 year plan?), I'd set the money into a GIC and continue my saving (you're clearly very good at it).
Jr. Member
Apr 10, 2003
121 posts
4 upvotes
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
Usually 10% of gross is what you should try for to save. Also, not sure you should put money in your RRSP with that income level, especially if you think you're going to make more in the near term (couple of years). Use TSFA.
Member
Dec 10, 2006
289 posts
3 upvotes
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
First I have to say at 25 you are doing awesome. You have created a situation where you will have the financial means to do anything you desire in your life from retiring rich(not necessaryily an imp goal), retiring early, and having the resources to live well along the way.

Listen to Shopperfriend, as their advice is excellent. Everyone needs to find their own balance between saving and spending. Too much of either isn't good. Find your financial chi ;)
ShopperfiendTO wrote:
Feb 21st, 2010 8:28 pm
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
8078 posts
915 upvotes
i6s1 wrote:
Feb 22nd, 2010 2:34 am
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.
To simplify, I only referred to federal rates.
At 40k, he's also pretty close to the next tax bracket, so things could change within a year.
Exactly my point: a year from now, or a few years from now, that RRSP contribution will net him back 7% (15%->22%, add whatever provincial rates) more on his tax return. Better to save the contribution space until then, especially since he's on a pension and RRSP contribution space will be limited.
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.
It's all about short term gain over long-term. How do we know that he doesn't have another source for downpayment, or doesn't plan to purchase until he's got the requisite 20% downpayment to avoid CMHC entirely?
[OP]
Member
May 22, 2009
415 posts
8 upvotes
Barrie
I want to have 20% down to avoid those fees :) The only problem I have currently is the interest rates I am receiving. I thought if I took on more of a risk in a TFSA and perhaps just left it in long term. As regards to my pension am I able to transfer that over to an RRSP with no fees? I would like to use that money for perhaps down payment.
Deal Addict
Feb 20, 2006
1171 posts
42 upvotes
Vancouver
Thalo wrote:
Feb 22nd, 2010 9:50 am
To simplify, I only referred to federal rates.



Exactly my point: a year from now, or a few years from now, that RRSP contribution will net him back 7% (15%->22%, add whatever provincial rates) more on his tax return. Better to save the contribution space until then, especially since he's on a pension and RRSP contribution space will be limited.



It's all about short term gain over long-term. How do we know that he doesn't have another source for downpayment, or doesn't plan to purchase until he's got the requisite 20% downpayment to avoid CMHC entirely?
It's hard to say without hard numbers, but the HBP is very powerful. Basically you can turn pre-tax dollars in your RRSP into pre-tax dollars outside your RRSP, at least for 1-15 years. It's equivalent to a free loan from the government.

Assuming you have a good use for these newly unregistered dollars, taking the HBP may be a good idea. A great use would be avoiding CMHC fees - but you don't need to use it for a downpayment. Another good use could be re-contributing back to your RRSP, or contributing to a TFSA.

Note also that if the OP is sure that he'll be in a higher bracket in the near future, but after he will buy a home, he can still make the contributions now, take the HBP soon, and then use the deductions later at a higher bracket, getting the best of both worlds.

The mathematics of this is discussed in some detail on FWF.
Deal Addict
Aug 24, 2002
3569 posts
21 upvotes
Sask
Be frugal for as long as you can...

If your life goes the same as 99.8% of the population then taxes, marketing, family, peer pressure, and a zillion other factors will gradually wear you down to where you are spending every paycheque as you earn it, rolling over debt time and again to pay for various upgrades in your lifestyle.

The longer you can fight off these factors and stay frugal, the better you will set yourself up for the future and the more discipline as a saver and investor you'll acquire.

Sure you're doing moderately OK for a young person, but what does the future hold? What are your prospects for wage appreciation, because $40k a year is going to be a stumbling block for you.

If I were your age I'd be looking at taking education or jobs to boost your earning by 50-100% or finding a spouse with high income. Everyone will tell you that you have 35 years til you retire but trust me, there will be a hundred times in the next 20 years you'll wish you had the money to retire, or change bosses, or changes companies... if you have sizeable savings you'll have the security to do that, but if you don't have the security you'll feel stuck.

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