Retirement Savings — you should have some — and you should invest it. Part 1.
Which is easier said than done, agreed, but the sooner started, the better, even with small buy-me-a-coffee amounts.
Post-writing pause for thought: I’ve written this and I believe what I have written, but I am neither an expert nor a professional. This is a charming anecdote, not financial advice.
This is part one of a two-parter. Link to part two at the end of this part.
Some of the ideas in this article will work for nearly anybody anywhere, whereas the other ideas are going to be Canadian-centric: RRSPs and TFSAs and like that. Maybe these ideas will be the catalyst that gets you to consider moving to Canada and juicing up my retirement income by contributing to CPP (Canadian Pension Plan). We need more young immigrants to keep our CPP fund topped up.
And that’s the thing. For a lot of us, the government pension plan, to which we contribute every time we get a paycheque, is going to be the spinal column in our monthly retirement stipend. If you are like me, few of your short-term contracts lasted long enough for you to be vested in the company pension plan. My company pension is teeny tiny because I was only able to fully contribute for the last 12 years of my working life. I’m not going to sneer at it because it also allows me to have Blue Cross, but I certainly can’t live solely on its substance.
Because of the short-term contracts, I could see this dreary writing on the wall, and I knew I had to save extra to add to my old age comfort. But what can you save when you make peanuts? Well … peanuts. But even peanuts add up if you save them consistently. One of my places of employment allowed the autodeposit to be split between two accounts. Any time I got a raise, even that time it worked out to $1.81 per paycheque because I had crossed into a new income tax bracket, I put the extra money in a second bank account — and ignored it. Most of the time I would do the same with any bonuses — except that time the movers thrashed our TV just as they brought it up the three front steps into the new house. sigh
So. The point is: don’t defeat yourself by sneering at your tiny savings. Just keep sticking it away.
Then, the crucial part is: what to do with your little bag of peanuts so that it will grow to generate income?
Early on, the only game in town for the lower income crowd was RRSPs (Registered Retirement Savings Plan). The federal government forgave tax on the income squirrelled away in an RRSP, and the resulting tax refund was often as much as a quarter of what was placed in the RRSP that year. One could treat that like a bonus (into savings) or use it to seed the following year’s RRSP contribution. Because of the tax refund aspect, most RRSP holders weren’t too worried about investing the money inside an RRSP. Mistake — but live and learn, right? RRSPs are still available.
Then, since 2009, Canadians have been able to contribute to TFSAs (Tax Free Savings Account). This is post-tax money, and it is a small (if you are well-socked) amount each year, but a new additional amount is permitted each year and the amounts add up. The enticing part is that whatever interest/dividends/windfalls the money inside the TFSA earns is not taxable. And, any money taken out is also not taxable. AND, if you wait the special waiting time, the money you have taken out gets added back into the total amount you can contribute. (There are special clauses about weird things I don’t understand — so don’t do anything weird.)
The burn with RRSPs is when you retire: all money removed is taxed. Yes, I know I’ve already had some benefits from the RRSP system, but: ouch. Also, if you do not remove it by the time you are 71, a special account, the RRIF (Registered Retirement Income Fund), is created and money is paid out to you regardless of whether or not you want it doled out that way. You might have been waiting to pay off your car/mortgage/some other big pricey thing, but now the money is locked in and miserably dribbled at you until you die.
The burn with TFSA is how to earn interest inside the account. Using a regular day-to-day bank account is a nonstarter. Many many financial instruments have been tailored to legally fit inside the TFSA and generate income. I agree with Mrs. Tweedy and am underwhelmed by these minuscule profits.
Okay. I’ll admit that the little bag of peanuts I saved during my working life wouldn’t be enough to keep Trudeau the Younger in socks, but it’s mine, and it can damn well do better than that.
This is part one of a two-parter. Here is the link to part two: Retirement Savings — you should have some — and you should invest it. Part 2. | by April Goodwin-Smith | Apr, 2023 | Medium
