First, the bad news. A million ain’t what it used to be. With inflation, a million bucks is not an extravagant retirement goal. Now, the better news. With careful planning and good saving, retiring with a million dollars in the bank is eminently attainable. Here are our tips for maximizing RRSP and TFSA contributions to get to your million mile marker:
1. Start early, but don’t give up if you’re not 18. There is no magic in the mix. It’s all about time. The longer you give your money to grow, the bigger the growth. Basic online RRSP calculators offer an easy way to get a ballpark number of how long it’ll take your money to millionairize. That said, look carefully at the projected rate of turn. Is 7% realistic? Perhaps not. Count on a solidly attainable rate of 3 or 4%. Everything beyond is gravy.
2. Make contributions as frequently as possible. While it’s wonderful to get your contributions in by RRSP deadline time, it’s a lot more economically advantageous to make monthly, or even biweekly, payments. Again, compare how much more your money will grow over time by contributing monthly versus annual.
3. Know your risk tolerance. The rule of thumb is to be riskier when you’re young, and gradually scale back your risk as you inch towards retirement. So don’t put your RRSP money in a low-interest savings account if you’re 18, and likewise don’t bet on risky stocks if you’re just a few years away from retirement. If you have an advisor, they are required to administer risk tolerance tests, but do your own research to find out where you’re comfortable.
4. Use your TFSA room. Just as you can be maximizing savings through RRSPs, TFSAs are a no-brainer. Again, a simple calculator can help you determine just how much you need to contribute to reach your retirement goals. What’s more, TFSA room carries over, so if you don’t have the money now, but do in the future, you can always make lump sum investments.
5. Up your contributions when you have the cash flow. Your finances will ebb and flow. In flush times, up your scheduled contributions, only scaling back if absolutely necessary. The best savings are automatic.