No good reason to skip RRSPs: Vaz Oxlade
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You’re never too young to think about an RRSP, and the earlier you start stowing your cash in one, the more it will work for you.
“The RRSP is the single best way for Canadians to save for the future,” says Gail Vaz Oxlade (www.gailvazoxlade.com), host of Slice TV’s Til Debt Do Us Part. “People have gobs and gobs of excuses as to why they don’t save, but you must save. It’s like breathing and brushing your teeth.”
Of course, there are different financial commitments over the course of your life that will make a profound impact on your RRSP contributions. What you spend your money on in your 20s will differ from what you spend in your 40s. But whatever your situation, there’s always a way to stash your money for a more comfortable future, you just need to know what you’re doing.
“Most importantly, you must recognize your personal goals, and start with a plan to reach those goals,” says Gary Horner, director of product development at Debt Free Canada, an independent organization dedicated to education on smart money management and debt elimination.
Starting to contribute to an RRSP in your 20s is the ideal time: The earlier you start, the less you need to contribute to maximize an investment. It’s also easier to bounce back from financial challenges, such as a loss due to fluctuations in the market, Horner says. ScotiaMcLeod financial adviser Preet Banerjee notes many students and recent grads are doing it to participate in the Home Buyers Plan, by borrowing against an RRSP for up to $20,000, and then kicking the tax return back into it.
“It has been estimated that if you start saving at 25 and plan to retire at 65, you’ll need to set aside between 4-5 per cent of your gross income. If you wait until you’re 35 to start, then you’re looking at between 6-8 per cent,” Vaz Oxlade says.
Fast forward to your 30s and early 40s. This will be the period of your life when you have the most expensive commitments: Maybe you’re married, negotiating a mortgage and you’ve got a baby. But if you sit down and do some number-crunching, Horner says, you can still kick as much as 10 per cent of your annual income into an RRSP, and a certain degree of financial independence will be inevitable down the road. The key is to live as if that other 90 per cent is all you make.
“Pretend your 10 per cent is not there. Pay yourself first. Treat it just like a bill. Solve your financial challenges with that 90 per cent of what you make,” Horner says.
“As far as having the money to save, everyone claims they don’t,” adds Vaz Oxlade. “Twenty-somethings don’t make enough. Thirty-somethings have mortgages that are too big. Forty-somethings have kids going off to university. Excuses, excuses, excuses.”