- December 3, 2023
- Posted by: legaleseblogger
- Category: Related News
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As a 23-year-old resident of Ontario with an annual income of $140,000, I am seeking guidance on retirement planning. My employer does not offer a pension, instead providing a Defined Contribution (DC) pension, also known as a Registered Retirement Savings Plan (RRSP). I have received conflicting information about RRSPs, including concerns about heavy taxation upon withdrawal. Given that this will be my primary source of retirement income, I am eager to gain clarity on this matter.
Currently, my employer contributes approximately $300 bi-weekly to the RRSP, while I personally contribute an additional $400. Additionally, I contribute approximately $700 bi-weekly to a Tax-Free Savings Account (TFSA) and $305 bi-weekly to a Flexible Housing Savings Account (FHSA), maxing it out at $8,000 annually. While I intend to continue contributing to the RRSP, I am uncertain about the best approach to further savings for retirement. Any advice on alternative retirement savings options would be greatly appreciated.
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****** just grabbed a
Jesus, 23 and $140,000? Unreal. What do you do so I can tell my son who is in pre-Law to change his career aspirations?
> instead we are given a DC pension (aka. RRSP).
A Defined Contribution Pension Plan is not an RRSP.
> IÔÇÖve been told different things about RRSP (good and bad things like youÔÇÖll get taxed to hell as soon as you start withdrawing)
Well, those people who told you RRSP’s are “taxed to hell” should be avoid with regards to topics such as money, taxes, or anything even remotely close to that as they have no clue.
Are you planning on buying a place (due to FHSA use) or do you plan on using as an extended RRSP?
Since you have a DC pension plan, max out TFSA before RRSP.
>IÔÇÖm a 23 year old living in Ontario my income is $140000 with plans to retire at 55-60
You’re probably looking at needing to save 15% to 20% at least of your pre tax income to be able to retire that early.
>My company doesnÔÇÖt offer a pension instead we are given a DC pension (aka. RRSP)
An RRSP isn’t a DC pension. DC RPPs are registered with the applicable province under pension legislation. RRSPs are just tax deferral vehicles.
>youÔÇÖll get taxed to hell as soon as you start withdrawing
You also get a tax deduction when you contribute. If your tax rate in retirement is less than your working tax rate then the lower taxes you pay on withdrawal are a massive benefit. People that are telling you the taxation of RRSPs is a downside to RRSPs are people you will never want to listen to again.
>My plan is to continue with the contributions to the RRSP plan but find other means of saving towards retirement but not sure what direction to go. Any advice is welcome.
You don’t need other means to save for retirement until all your tax sheltered room in RRSPs and TFSAs are full. The biggest long term decision you need to make is on housing. If you need to save for retirement at age 55-60 and a down payment on a house then that’s going to be astronomically expensive, you probably won’t be able to do both unless you can save at least a third of your pretax income, probably more since you are ambitiously targeting early retirement.
you are doing great. 23 and 140k is awesome. I never had a pension. When I was 23, I think I made 25k. But 30 years later, I still put 1200 a month in rsp and open account plus topping off tfsa.
I have about 2.5 in stocks/rsp plus 2 small houses. You already off to better start than I ever wise. My only advice is be prudent, save well and you can retire even earlier.
Right now is the time to max out your RRSP, TFSA and whatever ways you can defer taxes and save as much as you can.
Your goal might be able to work for the next 30 years but life changes and priorities change as well.
Saving now will give you choices.
I was where you are right now and after a health scare when I was 40 I wanted to spend as much time with my young kids so I retired early and been using my RRSP as income for the past 10 years and do not regret it at all.
Done right your Net Worth will not change!
WhatÔÇÖs your job?
If you suspect your income to get substantially higher hit the TFSA then the RRSP. You want to maximize the tax deductions, and let the TFSA money grow tax free. If your plan is get a house put the TFSA money in a gic , longer term plan put it an index fund and leave it alone.
a primary residence upon a sale represents the largest tax free income an average canadian will ever have . an rrsp is not tax free income and while a tfsa is tax free the annual contribution is limited. for most people the amount of prepayments allows for their mortgage is basically unlimited
Just here to say congratulations. Extremely well done.
Your going to be able to retire well before 60 if you so choose too. This a great living example of what is possible with some hard work, grit and taking an avenue that is shunned by most in the “uni” social elite club.
Cheers bud ƒæì
You can borrow 35k from your rrsp to buy a house too so you shouldn’t worry about the rrsp for the first 35k at least. At your salary you’ll get close to half of it back which is nice and worthwhile if you don’t need the money.
I’m definitely an outlier on PFC because I always wonder why people on here put so much time and energy into planning these things, including the emergency fund, with allocating and diverting money here and there every month. Technically isn’t every penny you save that you don’t spend going towards retirement? For sure you should max out all of the potential benefits, especially RRSP matching, but I don’t think about it that much. I keep my spending low and everything goes into my account then I put it into different accounts and invest it.
For RRSP I just wouldn’t put it in there if it’s not matched and I think I’ll need the money.
For context my expenses are low but I make about the same as you except I get a bonus too so I make more than I spend and try keep it that way.
LetÔÇÖs put it this way. IÔÇÖm 38 I make 140k(115k no overtime) with an RPP. Between me and my company matching, about 20k goes into that a year. ItÔÇÖs currently at 200k. I have an TFSA with 30k that I put 300 a month into an aggressive etf. If I manage to get my house paid off I MIGHT be able to retire comfortably between 60-65.
Max the registered accounts if you can, if youre topping up the RRSP you can carryforward your tax deductions for future earnings to maximize your savings while that money compounds. In over a decade or two you can determine if its necessary to top-up your RRSP but for now since youre early in the game max them, its easier to keep your RRSP full with RPP.
IMO if youre good at saving money and can invest it a DC is better than a DB pension, a lot of them now offer greater flexibility in choosing where to allocate your money. I currently have a DB and a LIRA from a previous DC pension plan, in hindsight it would have and has performed way better in my hands then it did with Manulife.
At $140K income, it absolutely makes sense to make RRSP contributions. Get that taxable income down one tax bracket. ThatÔÇÖs a healthy 40+% return on your money. The idea is that when you take that money out in retirement, youÔÇÖll be in a lower tax bracket than you are now and pay less tax on that income. RRSPs arenÔÇÖt ÔÇ£taxed to hell.ÔÇØ Ignore anyone who says that, because theyÔÇÖre wrong.
Don’t assume that retirement accounts will be sufficient to fund your retirement. Max them out and invest the rest using non-registered accounts into a globally diversified portfolio. Here’s the index funds we use:
– VUN for US.
– VCN for Canada.
– VIU for developed markets outside North America
– VEE for developing markets.
If this feels overwhelming, just use VEQT.
I’d also look into the FHSA for saving towards a down payment.
– might as well max the DC benefits, is it $1 – $1?
– max out TFSA
– RRSP you may need to consider not using (depending how successful you are, you could end up with a bigger tax hit on retirement, than when working), or using with RRSP meltdown strategy in mind
– since you’re aiming for retiring at an earlier age, RRSP meltdown could work out