Are you saving enough for retirement?

[GranteedEV]

Originally Posted by Slava

Well, I can’t give investment advice without knowing more, but if you have 30+ years until retirement (and you don’t need every dime of retirement income at age 65 either), you should be investing in things other than GICs.

perhaps my previous post was unclear.

I plan to be moving a chunk of my money into GICs after I retire and live off the interest. Right now even for short term saving I just put my money into CASH.to and for long term saving I put it into XEQT with a bit of BRK.B on the US side.

Regardless though, whether I do that or put it all into an SP500 tracking index, the biggest issue for me is that I just do not believe my wealth will grow to that 2.7M mark that I believe would be sufficient to live comfortably. I believe the US market in particular is overvalued and with declining birth rates North America will probably go the way of Japan or Europe. I hope I am wrong but I can't change my feelings. Too many financial "experts" have faith that the American market will follow past returns. Yes it's the world's most free economy and a place like Silicon Valley attracts the brightest minds, but I can't predict the future. My retirement depends on market growth outpacing inflation unless I basically live frugally in the middle age years. That strategy was flawless for past generations but past generations are the same ones who bought 3000 sq ft homes for 250k just to use as investment properties, they never depended on their savings alone. I will never own a second property unless home prices plummet.

[chemgear]

Originally Posted by Slava

Yeah they’re not. I guess if we’re talking about outside a tax sheltered account then the character of the income matters, but if we’re talking about RSPs and TFSAs it doesn’t.

Speaking of this, if you are able to meet the threshold for hitting the max RRSP is it enough to do just that and the annual TFSA. Say for the back half of your career?

(Even as I write this, I can see it all depending on things like how much you plan to spend while retired, length of career, etc.)

Jus thinking out loud.

[GGG]

Originally Posted by chemgear

Speaking of this, if you are able to meet the threshold for hitting the max RRSP is it enough to do just that and the annual TFSA. Say for the back half of your career?

(Even as I write this, I can see it all depending on things like how much you plan to spend while retired, length of career, etc.)

Jus thinking out loud.

If you contribute 18% of your income plus your TFSA from 25 to 60 you can retire quite easily .

Now doing it in less than 30 years becomes more difficult. Here is a grossly oversimplified chart of savings rate vs income in retirement. It assumes that your spending in retirement will equal your spending today minus your retirement savings.

https://networthify.com/calculator/e...thdrawalRate=4

With that logic it takes a savings rate of 40% to retire in 21 years.

[Slava]

Originally Posted by chemgear

Speaking of this, if you are able to meet the threshold for hitting the max RRSP is it enough to do just that and the annual TFSA. Say for the back half of your career?

(Even as I write this, I can see it all depending on things like how much you plan to spend while retired, length of career, etc.)

Jus thinking out loud.

Well you’ve hit the nail on the head with the spending amount point. You could do that and retire easily at a certain lifestyle, but if your cost of living is higher, you need more money. This is one of the issues with financial planning; there’s no “you need this much money to retire” answer that just fits for everyone. I have some clients who have retired and will never run out of money with fairly paltry withdrawals. I have other clients who have saved 4/5 times as much and are continuing to work and save though, because they couldn’t live the same way.

[Slava]

Originally Posted by GranteedEV

perhaps my previous post was unclear.

I plan to be moving a chunk of my money into GICs after I retire and live off the interest. Right now even for short term saving I just put my money into CASH.to and for long term saving I put it into XEQT with a bit of BRK.B on the US side.

Regardless though, whether I do that or put it all into an SP500 tracking index, the biggest issue for me is that I just do not believe my wealth will grow to that 2.7M mark that I believe would be sufficient to live comfortably. I believe the US market in particular is overvalued and with declining birth rates North America will probably go the way of Japan or Europe. I hope I am wrong but I can't change my feelings. Too many financial "experts" have faith that the American market will follow past returns. Yes it's the world's most free economy and a place like Silicon Valley attracts the brightest minds, but I can't predict the future. My retirement depends on market growth outpacing inflation unless I basically live frugally in the middle age years. That strategy was flawless for past generations but past generations are the same ones who bought 3000 sq ft homes for 250k just to use as investment properties, they never depended on their savings alone. I will never own a second property unless home prices plummet.

Well the US indexers and that discussion is probably a whole other topic and so is the whole idea of indexing. I would just say that the US just had an unbelievable run for about a decade. The outperformance of the US against the rest of the world was remarkable. In my business though, reversion to the mean is a thing. That doesn’t mean the international markets outperform in 2024, and it doesn’t mean the “other 493” outperform the magnificent seven in 2924 either. All I would say is that there are a lot of ways to save and invest.

[Izzle]

Diversification is the closest thing one can get to a "free lunch."

Diversify across:
- asset classes
- industries
- geography

[Aarongavey]

Originally Posted by Slava

Well you’ve hit the nail on the head with the spending amount point. You could do that and retire easily at a certain lifestyle, but if your cost of living is higher, you need more money. This is one of the issues with financial planning; there’s no “you need this much money to retire” answer that just fits for everyone. I have some clients who have retired and will never run out of money with fairly paltry withdrawals. I have other clients who have saved 4/5 times as much and are continuing to work and save though, because they couldn’t live the same way.

I find guessing at what you will spend in retirement quite difficult right now because most of our spending is on our kids. They will be out of the house in a decade though. We currently save about 13% of our gross income, not including CPP. But I would estimate that 35% of our gross income or more goes into the kids (both are in competitive sports). Don’t expect that expense to go down in the next decade but it makes it difficult to figure out what our retirement expenses would be. Kids have maxed out RESP’s and only two years left to save on one to keep getting the government money and 5 years left to save on the other.

While helpful, I find calculators like the one shared above don’t take into account differing expense levels for when you are raising children. If I cut out the kids or even reduce their cost to me when they are adults to 10% of my current gross the amount my wife and I need to live off of is substantially less.

[Slava]

Originally Posted by Izzle

Diversification is the closest thing one can get to a "free lunch."

Diversify across:
- asset classes
- industries
- geography

There is no free lunch. Diversification has a cost as well.

Originally Posted by Aarongavey

I find guessing at what you will spend in retirement quite difficult right now because most of our spending is on our kids. They will be out of the house in a decade though. We currently save about 13% of our gross income, not including CPP. But I would estimate that 35% of our gross income or more goes into the kids (both are in competitive sports). Don’t expect that expense to go down in the next decade but it makes it difficult to figure out what our retirement expenses would be. Kids have maxed out RESP’s and only two years left to save on one to keep getting the government money and 5 years left to save on the other.

While helpful, I find calculators like the one shared above don’t take into account differing expense levels for when you are raising children. If I cut out the kids or even reduce their cost to me when they are adults to 10% of my current gross the amount my wife and I need to live off of is substantially less.

The financial plan has to be revisited and reviewed as things change. Even your own vision of retirement and associated spending can change significantly, so while projecting years out and it not being perfect is a drawback, things get clarified as you get closer.

[Izzle]

Originally Posted by Slava

There is no free lunch. Diversification has a cost as well.

Yup, you and I agree. That's why I said it's the closest thing to a free lunch, not a straight up free lunch.

[chemgear]

Originally Posted by Aarongavey

I find guessing at what you will spend in retirement quite difficult right now because most of our spending is on our kids. They will be out of the house in a decade though. We currently save about 13% of our gross income, not including CPP. But I would estimate that 35% of our gross income or more goes into the kids (both are in competitive sports). Don’t expect that expense to go down in the next decade but it makes it difficult to figure out what our retirement expenses would be. Kids have maxed out RESP’s and only two years left to save on one to keep getting the government money and 5 years left to save on the other.

Are you sure? Absolutely sure?

Just kidding, but costs of housing seems to be quite an issue for many upcoming years with increasing immigration.

[Strange Brew]

There is a new term called "snowplow parenting". In the context of finances, it is parents who remove every financial obstacle for their children.

Putting aside money for college is one thing but with two college aged kids, I still find lots of expenses that I had not anticipated. I think I'm guilty of plowing the road a bit too much for them.

[Jason14h]

Originally Posted by Strange Brew

There is a new term called "snowplow parenting". In the context of finances, it is parents who remove every financial obstacle for their children.

Putting aside money for college is one thing but with two college aged kids, I still find lots of expenses that I had not anticipated. I think I'm guilty of plowing the road a bit too much for them.

They either get it now or when you die 😜

Unless you want to spend on yourself in which case I fully support “F them kids”

[Sylvanfan]

The last two years have pretty much ruined me financially. When I first started working full time in the mid 90's, I thought the Chief Draftsman had a crappy life. He made like $23 an hour, drove a 92 Dodge Spirit, lived a a pretty modest house and his wife worked part time in retail.

Fast forward to today and I realized the other day..he was better off than I an today. Income wise we're the same, I make double what ge did, but that's a terrible wage in today's world. I fooled myself thinking for a few years in the early 2000's when my wage increased that I was doing better. My wife has an okay job but she makes less than I do so by CP standards the two of us together are still a good 75k short of what most individuals on this site claim to make. In the past 18 months with all my costs increasing by about 30% for housing, food, insurance and other basic expenses and our income staying stagnant, we are losing ground big time. If we don't downsize or find much better jobs, we're going to start bleeding out in a couple years. So yeah, I'm in a bad spot financially and I'm not intelligent or creative enough to figure out how to turn things around.

[Buff]

Originally Posted by Sylvanfan

The last two years have pretty much ruined me financially. When I first started working full time in the mid 90's, I thought the Chief Draftsman had a crappy life. He made like $23 an hour, drove a 92 Dodge Spirit, lived a a pretty modest house and his wife worked part time in retail.

Fast forward to today and I realized the other day..he was better off than I an today. Income wise we're the same, I make double what ge did, but that's a terrible wage in today's world. I fooled myself thinking for a few years in the early 2000's when my wage increased that I was doing better. My wife has an okay job but she makes less than I do so by CP standards the two of us together are still a good 75k short of what most individuals on this site claim to make. In the past 18 months with all my costs increasing by about 30% for housing, food, insurance and other basic expenses and our income staying stagnant, we are losing ground big time. If we don't downsize or find much better jobs, we're going to start bleeding out in a couple years. So yeah, I'm in a bad spot financially and I'm not intelligent or creative enough to figure out how to turn things around.

Same

[Whynotnow]

Originally Posted by Buff

Same

That sucks for both of you, hurts to hear that. My best advice is get a professional to help you, sooner rather than later. You may have more options now then you would if you let this get to a worse spot.

[RichieRich]

Regarding GIC's...
an opinionated view of GICs: https://www.greaterfool.ca/2022/09/11/terminally-safe/


They're not for everyone however there's enough people who find them safe enough or provide enough return based on the size of their next egg.


As for those with lower incomes... I saw/read something earlier this week that the best thing you can do is to work on yourself.. meaning where/if possible improve your skills, take a more active role in evaluating what you can do about your current financial situation, look to see if you can make several stretch targets then chart a plan on how to get there. It might mean making some tougher decisions (less luxury items, less personal time so you can do training, reducing costs of living... (looking at you new phones/cars/homes/clothing)). Not saying it's easy or possible for everyone all the time.

Anecdotal at best view here... I know a few very low income earners (sub $20k/yr) and sometimes I wonder about their purchasing decisions; much of the time they unfortunately scrape by somehow and have a series of small dramas because they can't afford permanent solutions). What's the best way to support people in these situations?

[GGG]

People making 20k per year are below full time minimum wage. The first steps would be ensuring they have access to all government benefits they are entitled to and the discussing improving employment.

I don’t think you can earn 20k and be able to withstand even small dramas.

[Language]

My wife and I are definitely behind the eight ball when it comes to retiring. My wife is stay at home with our two young kids, while I work full time and earn decently well. I’m 38 and my wife is in her mid-30’s.

We recently moved to Toronto from the U.S., and most of the money we had saved up, went towards a down payment (if it was up to me, we would be living in Alberta right now, but alas…). Due to the significant real estate prices here, we still have mortgage that’s close to $1m. I can comfortably cover our mortgage and household expenses, but it’s stressful thinking about needing to pay off a huge mortgage, save for our own retirement, and also save to help our kids in the future.

We’ve never contributed to an RRSP, so definitely need to get going on that asap. With a target retirement date of 60-65, it leaves me a 22-27 investment horizon window.

Would something like this be a solid plan:
1) open RRSP for myself and spouse (Wealthsimple?)
2) start to immediately contribute each month, so annual contribution is equal to max limit
3) invest in index funds?

For 3, do people typically diversify their index funds, or would dumping everything into something like VEQT be a simple and effective strategy? I know everyone always says diversification is key, but does that hold true for ETF’s?

Thanks all.

[Jason14h]

Originally Posted by GGG

People making 20k per year are below full time minimum wage. The first steps would be ensuring they have access to all government benefits they are entitled to and the discussing improving employment.

I don’t think you can earn 20k and be able to withstand even small dramas.

Minimum wage is 15$ an hr in Alberta . That’s $30k a year

If someone is making 20$k a year full time literally hand them any application for any job to improve their financial situation

[GranteedEV]

Originally Posted by Language

My wife and I are definitely behind the eight ball when it comes to retiring. My wife is stay at home with our two young kids, while I work full time and earn decently well. I’m 38 and my wife is in her mid-30’s.

We recently moved to Toronto from the U.S., and most of the money we had saved up, went towards a down payment (if it was up to me, we would be living in Alberta right now, but alas…). Due to the significant real estate prices here, we still have mortgage that’s close to $1m. I can comfortably cover our mortgage and household expenses, but it’s stressful thinking about needing to pay off a huge mortgage, save for our own retirement, and also save to help our kids in the future.

We’ve never contributed to an RRSP, so definitely need to get going on that asap. With a target retirement date of 60-65, it leaves me a 22-27 investment horizon window.

Would something like this be a solid plan:
1) open RRSP for myself and spouse (Wealthsimple?)
2) start to immediately contribute each month, so annual contribution is equal to max limit
3) invest in index funds?

For 3, do people typically diversify their index funds, or would dumping everything into something like VEQT be a simple and effective strategy? I know everyone always says diversification is key, but does that hold true for ETF’s?

Thanks all.

1) Yes, open up both an RRSP and a TFSA. Wealthsimple and Questrade are both solid online brokerage options.

The RRSP is a tax-deferred account (e.g. if you deposit $10000 in 2024, and you have a tax rate of 32.5% for instance, you will get $3250 back next year when you file your taxes, which you could then reinvest.) However when you retire, if that 10000 has grown to 20000, and you want to withdraw it, you will have to pay income tax on it, although your tax rate might be lower (for instance 30.5%).

The TFSA is a (mostly) tax-free account in that if you deposit $7000 in 2024, and that $7000 grows to $14000, you can withdraw it anytime you want without worrying about being taxed. But since that original 7K came from your net income, you did already pay taxes on the initial contribution before it became income.

The benefit of the TFSA is that if something unforeseen were to happen in 2035, you could withdraw from it, and that withdrawal would be added to your 2036 contribution limit. So even though it's not primarily a retirement account, it's by far the best account to max out before you max out another. The annual contribution limit per person is 7000 right now, and if you didn't contribute in previous years of living in Canada as an adult, those years would have carried over. Your wife and yourself thus might have over 14000 in purely tfsa contribution room this year - even if she isn't working. The RRSP limit on the other hand is entirely dependent on your income. Both do also carry over from previous years. Last year the TFSA limit was $6500 so you might both have another $13k in TFSA contribution room to max out if that carried over. On that note though, I don't recall if wealthsimple or questrade have joint TFSAs, so you might need to make separate accounts for your wife and yourself if you want to go that route as your TFSA probably caps out at your contribution limit (but I'm not an expert on stuff like this, I'm just some dude)

If you're in a higher tax bracket, maxing out the rrsp makes more sense (but in that case maxing out both isn't much of an issue anyways - you have the income for it regardless) but if you're in a more typical tax bracket, you probably have more to gain from maxing out both your TFSAs first.

Your employer might also offer RRSP contribution matching so that is worth looking into (e.g. if you deposit 3% of your pretax paycheck they will deposit 3%, and you don't have to wait until tax return time for these). In that case at least contribute to your RRSP what your employer is willing to match

Final note - RRSP contribution deadline is 60 days into the next year, TFSA deadline is end of year. So If you want a tax break for last year, you can contribute before end of month and have that in your 2023 return. Year end bonuses are thus a good fit for rrsps. Your TFSA contribution needs to be declared in your 2024 return, make sure not to go over your limit in the calendar year essentially.

2 - contribute what makes sense in your budget. That's the other nice thing about the TFSA - it can effectively double as your emergency fund as long as you realize all contributions and withdrawals need to be declared, and selling stocks/equities/bonds might take a little longer than having liquid cash in an account. But even purely as a retirement vehicle it will probably give you more money when you're old - because money withdrawn from your tfsa isn't taxable income.

3 - Typically index tracking ETFs are popular these days. I can't tell you where to put your money but I will answer your other question. If all your money is in VEQT - it is already diversified between equity in the Canadian, US, and Intl markets. It is market cap weighted and readjusted quarterly. But diversification is essentially the whole point of these kinds of ETFs. The easiest one to explain would be VFV which is the requivalent of owning stocks in the top 500 publically traded corporations in USA, weighted towards the top of the list. If you own VFV you essentially own MSFT, NVDA, GOOG, META, AMZN, TSLA, AAPL, plus 493 other companies that might peak if and when the other seven falter. And if you own VEQT, part of that is VFV essentially.