How much do you put into RRSP's?

[Slava]

Originally Posted by Devils'Advocate

Okay, so I was talking to a financial guy yesterday about my situation.

I'm going to do some rounding here to make the calculations easier. Let's say I make $100,000 per year. If I work to 60, when I retire my pension will pay me $70,000 per year. So the financial guy asked me how much I WANTED to make each year. My response was that I would preferably like to be making the same - $100,000. He said, well, no, most people need much less when they retire. My thought was, uh, WHY? Wouldn't you want MORE in retirement? What if I plan on travelling the world? I most certainly don't plan on sitting at home watching TV 16 hours a day.

I was told that to make $100,000 in my retirement, I'll have to start putting $3,000/month into a 3% return RRSP. Which obviously means I'd have to live like a hermit between now and retirement.

So I guess my question is - why do people have their expenses go DOWN after retirement? Like I said, I would think people would be going on MORE vacations; MORE entertainment outings; etc.

I think that for the first decade or so of retirement people do spend more than say for their final 15 years (or so). Reitirement income isn't a simple straight line with a little bit of inflation mixed in for good measure.

[Jude]

Originally Posted by kunkstyle

No mortgage, for starters.

Another would be no dependents.

[shermanator]

Okay so random question. While doing my taxes, TurboTax suggested that I take out a $1500 loan, put that additional money into my RRSP, and then use the $1500 I would get back on my tax return to pay off the loan. What are people's thoughts on this?

[Slava]

Originally Posted by shermanator

Okay so random question. While doing my taxes, TurboTax suggested that I take out a $1500 loan, put that additional money into my RRSP, and then use the $1500 I would get back on my tax return to pay off the loan. What are people's thoughts on this?

We'll without knowing anything about you/your situation its hard to say. In general though I would say its a good strategy. Get a 90 day deferred loan and make it easy on yourself that way as well.

[Devils'Advocate]

Originally Posted by kunkstyle

No mortgage, for starters.

Originally Posted by Jude

Another would be no dependents.

I'm renting now, and presume I will be renting in the future. I had a house, but couldn't justify the cost of such a huge dwelling for a single person. I suspect with the cost of housing going up, I expect to pay much more in rent when I retire.
As for dependants, I have no children, but when I retire, say at 60, my mother will be 80 and I don't think she stocked enough away for her retirement, so it's possible that I could have more dependants at 60 than I do at 40.

Originally Posted by Slava

I think that for the first decade or so of retirement people do spend more than say for their final 15 years (or so). Reitirement income isn't a simple straight line with a little bit of inflation mixed in for good measure.

But i would think that when I hit my waning years, I would want to be a decent retirement home, not the hellhole places they cover in the news:
http://www.cbc.ca/news/background/nu...aten-down.html
So of course the rent would be higher for a good facility.

[Jason14h]

I was told that to make $100,000 in my retirement, I'll have to start putting $3,000/month into a 3% return RRSP. Which obviously means I'd have to live like a hermit between now and retirement.

You said you had a $70,000K pension, meaning you need to make up $30,000K a year. And the suggestion is you need to save $36,000 a year?

Am I missing something here! Are you expecting to live to 110?

[Devils'Advocate]

Originally Posted by Jason14h

You said you had a $70,000K pension, meaning you need to make up $30,000K a year. And the suggestion is you need to save $36,000 a year?

Am I missing something here! Are you expecting to live to 110?

Actually, we plugged into the calculator that I would live to 90.

http://retirement-calculator.tdcanad...about-you.html
Page 1: 40, 60, 100000
Page 2: 30, 100000, 70,000
Page 3: 20000, 200, 0, 0
Page 4: 3%

Results: You need to save $1,500,000. At current rate, you will save $114,000.
If on Page 3, I change the $200 per month to $3000 per month, I still don't have enough.

[flamesfever]

Besides the no mortgage, no kids to feed and clothe etc., you spend less on clothes, you forget trying to keep up with the Joneses, you start to slow down and start to smell the roses. There are ways to scale down your expenses by selling your house, which is probably too big for you and your wife anyway. You can then move to a small town where the cost of living is much less. You can can also increase your income by working part time.

Keeping busy is usually not a problem. It's utterly amazing how you can find things to occupy your time. In fact most retirees I've spoken with say they often wonder where they ever had the time to work. Things like spending time with the grandkids, volunteering, socializing with friends, pursuing various hobbies like carpentering, fishing, hunting, watching movies and various sports, travelling, etc. I think the idea of travelling the world is grossly over-rated. There are tons of places I want to see in Canada before I go traipsing around the globe. Besides, it's much safer, you speak the same language and share the same culture, and you're also contributing to the tax base.

How much money you have in retirement is going to relate to things like your education, income, how well you manage your money, the degree of risk you take, luck, etc. It's also very important to start an RRSP or TFSA as young as possible. Having said that I believe it's important to strike a balance between enjoying your self today vs saving for retirement. You never know what the future will bring.

[MoneyGuy]

Originally Posted by shermanator

Okay so random question. While doing my taxes, TurboTax suggested that I take out a $1500 loan, put that additional money into my RRSP, and then use the $1500 I would get back on my tax return to pay off the loan. What are people's thoughts on this?

I agree with Slava. I think this is a good idea if you can pay the loan off in one year, two at the most. It almost looks like you think the tax refund will pay off your loan; it won't. I'm assuming you're young if you don't have $1,500 on hand. If you're older than 30 and don't have that kind of cash on hand, you need to work on that. If you take the loan, once it's paid off, direct those monthly payments into your RRSP. You don't have to tell us your income, but if you're in Alberta and your income put you into one of the three highest tax brackets, the RRSP is great. If your income is lower, the TFSA may be a great option.

[MisterJoji]

I should really speak to a financial advisor as I assume I am currently doing alright. But you know what they say when you assume. I started my career at an early age (20) and contribute to a defined pension plan where I put in 6.5% of my income and my employer puts in 7.5% so that's 14% right there. I also contribute approximately 4% into a personal RRSP's, so that brings my total up to around 18% which is pretty good I think. But my own investments are split up in a multitude of ways. Some of which is locked into a 5 year GIC, some of it into a very low risk account (1-2% annual interest rate), some into a medium risk mutual fund and some into a high risk mutual fund (this money coming from a kind of expense account which I view as "free money" so if I do lose out in the high risk, it wasn't really my money). But I have absolutely no idea if this is a good strategy or not?!?

[Slava]

Originally Posted by MisterJoji

I should really speak to a financial advisor as I assume I am currently doing alright. But you know what they say when you assume. I started my career at an early age (20) and contribute to a defined pension plan where I put in 6.5% of my income and my employer puts in 7.5% so that's 14% right there. I also contribute approximately 4% into a personal RRSP's, so that brings my total up to around 18% which is pretty good I think. But my own investments are split up in a multitude of ways. Some of which is locked into a 5 year GIC, some of it into a very low risk account (1-2% annual interest rate), some into a medium risk mutual fund and some into a high risk mutual fund (this money coming from a kind of expense account which I view as "free money" so if I do lose out in the high risk, it wasn't really my money). But I have absolutely no idea if this is a good strategy or not?!?

Feel free to send me a PM if you want to sit down sometime.

[tvp2003]

Just posting to say I'm jealous of those with pensions ($70k per year?!?) and employer matching RRSP programs... must be nice

[edn88]

10% and try to put as much as possible against mortgage (another 10%)

[Cowperson]

Originally Posted by Devils'Advocate

Okay, so I was talking to a financial guy yesterday about my situation.

I'm going to do some rounding here to make the calculations easier. Let's say I make $100,000 per year. If I work to 60, when I retire my pension will pay me $70,000 per year. So the financial guy asked me how much I WANTED to make each year. My response was that I would preferably like to be making the same - $100,000. He said, well, no, most people need much less when they retire. My thought was, uh, WHY? Wouldn't you want MORE in retirement? What if I plan on travelling the world? I most certainly don't plan on sitting at home watching TV 16 hours a day.

I was told that to make $100,000 in my retirement, I'll have to start putting $3,000/month into a 3% return RRSP. Which obviously means I'd have to live like a hermit between now and retirement.

So I guess my question is - why do people have their expenses go DOWN after retirement? Like I said, I would think people would be going on MORE vacations; MORE entertainment outings; etc.

It really depends on who you are and what your interests are. I know a lady who takes six cruises a year, which is an expensive retirement, and another lady who likes fishing in the back 40, which costs about $1.49.

Are you an expensive guy?

Is your pension indexed after you retire, or fixed at $70,000 for life? A $70,000 pension is like having roughly $1.5 million in sustainable savings, although illiquid.

Did your advisor acknowlege the existence of CPP as another source of income?

The expensive retirement years used to be prior to the "70-yard line," after which the will and desire to be active diminished through time. However, that is definitely changing and people are staying very active past 70.

Another very prominent trend is that people are no longer flat out retiring, but rather gradually fading out of the work force. Your worry about being bored after 60 fits that pattern very well. A great many people go back to work as consultants with diminished hours and greater freedom but still earning a very liveable income which combines with their pension. All because they're bored and they want to continue to contribute and yes, they might need the income.

Most likely, you will prove to be this type of person, which would obviate a bit the need to live like a monk in today's world.

From your other description, it sounds like you will be supporting your mother and secondly, not owning your own residence are two weaknesses in your picture. Those are reasons you may have to continue to render yourself somewhat employable in quasi-retirement.

You should concentrate on building a pool of capital, preferably accessible outside of a pure RSP environment, simply for the freedom and flexibility it would provide you. Is that $3,000 per month? Probably not. Enjoy your life today because you never know how short it might be.

Just rambling.

Cowperson

[darklord700]

Originally Posted by Devils'Advocate

So I guess my question is - why do people have their expenses go DOWN after retirement? Like I said, I would think people would be going on MORE vacations; MORE entertainment outings; etc.

It's generally not possible to have a higher retirement income than working income. I think the financial industry is doing us a big disservice by painting a far rossier retirement picture at most of their advertisement.

If you can't afford Europe in your working years, you can't afford Europe after you retire and have no money coming in. Most seniors do watch TVs 16 hours a day and I bet their TVs aren't the latest 60" think bezel Samsung.

I've learned not to treat retirement as a lottery ticket and think it'll solve all your financial and life problems. If anything, retirement will only make those problems worse for majority of the people.

That's not to say most of us will suffer, but I certainly won't put my life on hold waiting for retirement to come. If there's something you want to do, do it now instead of later is usually the good way to go.

[blankall]

Originally Posted by darklord700

It's generally not possible to have a higher retirement income than working income. I think the financial industry is doing us a big disservice by painting a far rossier retirement picture at most of their advertisement.

If you can't afford Europe in your working years, you can't afford Europe after you retire and have no money coming in. Most seniors do watch TVs 16 hours a day and I bet their TVs aren't the latest 60" think bezel Samsung.

I've learned not to treat retirement as a lottery ticket and think it'll solve all your financial and life problems. If anything, retirement will only make those problems worse for majority of the people.

That's not to say most of us will suffer, but I certainly won't put my life on hold waiting for retirement to come. If there's something you want to do, do it now instead of later is usually the good way to go.

The only saving grace is that, in theory, you would own your own place and, therefore, not have to pay mortgage/rent anymore. Many seniors will also have the ability to downgrade the size of their home from a house to a condo. This should free up additional income. Also, the other huge expense that dissapears is children. Most people budget towards supporting their children, which is becomming a longer and more expensive process everyday.

There are a lot of seniors that live a much fuller life than you describe. It just takes many many years of working and strong financial planning.

[CarlW]

Originally Posted by Slava

You have the basics there; you receive some guarantees (such as capital guarantees at a certain date, or a guaranteed income stream and death benefits) and pay a higher fee for that. You still have upside depending on the investment mandate but you pay more in a Segregated fund than you would for the same mandate in say a mutual fund.

Generally speaking these can be useful for people in certain situations, such as people who need/want that guarateed stream of income or have estate planning needs.

Been out of town, but wanted to chime in on this. I know of at least one seg fund with a minimum of $250k (relevant cause we all know CP has most of the 1%) with a certain company that has lower MER than the Mutual Fund and there may be others out there.

Also with Seg Funds you can flow through Capital Losses whereas the Mutual Fund you cannot.

I think it's a good choice for Older individuals, and more conservative individuals that want guarantees. Also, if you wanted to try VERY risky investments with principle protection.

[Slava]

Originally Posted by CarlW

Been out of town, but wanted to chime in on this. I know of at least one seg fund with a minimum of $250k (relevant cause we all know CP has most of the 1%) with a certain company that has lower MER than the Mutual Fund and there may be others out there.

Also with Seg Funds you can flow through Capital Losses whereas the Mutual Fund you cannot.

I think it's a good choice for Older individuals, and more conservative individuals that want guarantees. Also, if you wanted to try VERY risky investments with principle protection.

True enough, but when you hit $250k and above almost every fund (if people go that route) has a reduced fee structure so its largely irrelevant.

Its a bit of a stretch on the capital losses though. The individual investor can't flow anything, its all done by the company. So while its true that you can receive losses as well as gains on a segregated fund, you have no control. I only mention this because its one of my most disliked factors about investment funds of any type; I want total control as an investor and this isn't the case in that situation.

Also, almost no seg funds let you do anything VERY risky any more. You can buy some pure equity mandates, but the small cap, emerging market kind of funds are not prevalent.

To me the major benefits of the segregated funds at this point are either those income guarantees or the estate planning benefits (which are numerous). Depending on your situation as well, the creditor protection can be excellent for a small business owner.

[CarlW]

Originally Posted by Slava

True enough, but when you hit $250k and above almost every fund (if people go that route) has a reduced fee structure so its largely irrelevant.

Its a bit of a stretch on the capital losses though. The individual investor can't flow anything, its all done by the company. So while its true that you can receive losses as well as gains on a segregated fund, you have no control. I only mention this because its one of my most disliked factors about investment funds of any type; I want total control as an investor and this isn't the case in that situation.

Also, almost no seg funds let you do anything VERY risky any more. You can buy some pure equity mandates, but the small cap, emerging market kind of funds are not prevalent.

To me the major benefits of the segregated funds at this point are either those income guarantees or the estate planning benefits (which are numerous). Depending on your situation as well, the creditor protection can be excellent for a small business owner.

While you don't have the total control that you covet, it is something that is different from a mutual fund, and I mentioned it because posters wanted info on seg funds, they should know they have the possibility to offset capital gains from elsewhere with seg funds.

Regarding risky seg funds, have you looked at SSQ's Seg fund offerings they have some very interesting funds available, many on the risky side I believe they even have hedge fund.

I agree regarding the creditor protection and estate planning.

[Slava]

Originally Posted by CarlW

While you don't have the total control that you covet, it is something that is different from a mutual fund, and I mentioned it because posters wanted info on seg funds, they should know they have the possibility to offset capital gains from elsewhere with seg funds.

Regarding risky seg funds, have you looked at SSQ's Seg fund offerings they have some very interesting funds available, many on the risky side I believe they even have hedge fund.

I agree regarding the creditor protection and estate planning.

Oh ya, I wasn't questioning anything that you said or anything, just adding to your thoughts there really.

I see that they have some hedge funds and more aggressive funds there, but the MER is getting close to 3.5% and then you have a performance fee on top of that. That gets tough to take!