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The end game

The end game

We’ve been working on setting up our shared office, which is starting to finally come together

Mr. Tucker started at his current company in 2008. A lot has happened between then & now such as ownership changing hands a couple of times, some growing pains with mergers and he even left for a bit (and then they bought that company, too! HA!). Last year a larger company has acquired them and he’s has vacillated between, “I hate this, get me out of here” to “ok, well now I want to know how this will end!” He is currently very much in the second camp.

Retirement for Mr. Tucker was a stretch goal for 2024. The thing is: we have met all of our goals *except* selling the condo. It’s currently for sale but until that gets sorted, Mr. Tucker can’t quit. That’s fine, we knew that. There is a joke that people who reach financial independence then “forget” to retire*. I feel like we are kind of in that zone right now.

I get his logic though: he was at the company when they were a small start-up in the Bay area in 2009 and he wants to see what the end game will look like. Although the parent company hasn’t made large moves to redistribute staff and merge departments it should be happening by the end of this year. So while he technically can leave the working world the moment the condo is sold, he has decided wait to join me in retirement once he sees the company completely absorbed into the new one. I get that feeling: it feels kind of like seeing your kids head off to college. You’re sad because it’s the end of an era but you are also proud because your kids have grown up and you’ve accomplished all that you can.

So I guess we will start putting more money into our tax-advantaged accounts and even spend a little more**? Of course, a day may come where he gets completely fed up with work and just decides to throw in the towel so it is nice to know that no matter what he chooses, we are technically financially independent now so he can make a choice and not look back.

*If that’s your plan, I know it isn’t for everyone.
**We are taking an Intro to leather working course together at the end of the month, which is exciting!

On scams and fear of starving in retirement

On scams and fear of starving in retirement

John Oliver is amazing and it is the reason why HBO hasn’t canned him, despite the fact he stirs up a lot of legal drama. He does to a lot of great public service segments and most are well worth watching. Here is a show he recently did on pig butchering scams:

Now, this is an important PSA for everyone because I think that a> yes, we – and by “we” I mean “everybody,” including me – are prone to getting scammed; b> we have no idea how far the rabbit hole goes with organized crime getting in on it; and c> how important it is to come forward and tell people about how easy it is to get scammed. It’s incredibly embarrassing to admit that it has happened to you but it is so important to let others know. Forewarned is forearmed, after all!

But I think what struck me in the comments section were people who said, “Can you imagine having enough money in the first place that you could lose $350,000!” followed by, “Interesting to see this comment!! I was like “wow, I can barely afford my rent, no savings for a rainy day and they’re losing more money than I can save in 4 lifetimes!!”

I automatically juxtaposed these comments to the hysterical headlines of “CANADIANS BELIEVE THAT YOU NEED OVER ONE MILLION DOLLARS TO RETIRE*” that has plagued Canadian media in the past year. This lead to a bunch of rebuttals including from one of Canada’s most adorable couples who retired early(ish) with “only” $300 000 in the bank.

The reality is that even though people are supposed to save for retirement, most of them don’t. Many people just live on the average amount of government benefits. So I thought it would be interesting if I calculated it up for a person who made minimum wage their entire lives but who worked until they were 65. This is both for the Canada Pension Plan (which we pay into) and Old Age Security (which is welfare for old people**).

They would get a total of $17658/pa or $1471.50 a month.

Since that number is under the $21624/pa cutoff for a single person for the Guaranteed Income Supplement, a single person working a minimum wage job could get up to $1065.47 on top of that CPP/OAS amount, bringing the grand total to $2536.97 a month or 30443.64/pa. It’s not a lavish lifestyle but it is definitely manageable, especially if you have some paid off real estate, social or co-op housing, live in a low-COLA area or have a bunch of roommates.

If you somehow also managed to save in a TFSA – let’s say, $100 000 total over your lifetime – you could probably also take out 4% tax free during your retirement that would also give you an extra $4000 a year that wouldn’t affect your benefits at all. Again, not a high-on-the-hog lifestyle but manageable.

OH? You don’t think someone who makes minimum wage could save $100000 over 30 years? I mean maybe not…but also it would only mean saving $1380 OR $115 a month in a TFSA at a 5% interest rate, which is not out of the realm of possibility, either.

We all know that this is over a long time span and programs come/go/and get cut by governments all of the time & the future is unknowable. While we tend towards the catastrophic, things can also get better if you are a good saver and/or make more money over your lifetime. They can also get worse if, say, you were a stay-at-home spouse with someone who died and left you nothing***. I think focusing on what you can control, today, is better than letting the panic freeze you into inaction or living your life in fear.

Naturally, this is all just a thought experiment. I am sure you could nitpick this example to death**** but it is an example of one particular scenario out of many and it’s just to show people that all is not lost if you don’t have a million dollars in the bank. I feel that it is counterproductive to push the ZOMG IF YOU DO NOT HAVE A MILLION DOLLARS YOU WILL HAVE TO EAT CAT FOOD narrative in a province where we seem to be ok with Welfare being $733 and Disability (ODSP) just $1308 a month.

Don’t let the bastards get you down.

*Depending on your demographic, according to this BMO survey.
**This is exactly what OAS and GIS are as it comes out of the current federal budget. If you want to watch your old, curmudgeonly uncle lose his goddamn mind at Thanksgiving, tell him that he is actually on welfare and stand back and watch the sparks fly!
****I put in 1975 as the birth year but the TFSA has only been around since 2009, par example.

Haus of Plague

Haus of Plague

What I am reading
• Do Early Retirement principles still work? (I was very tempted to add, “IN THIS ECONOMY?” 😂)
• Revenge of the renter. Will we see more rent strikes in Canada?
• Dave Ramsey has lost the plot and is recommending an 8% drawdown rate in retirement. I don’t know who else thinks this but I feel like the best personal finance advice authors wrote their content in a few books and then the authors quit. I am wary of people who keep churning out new books on old advice.
• HAH: my friend M sent me this right after I wrote that supernerds unite against Dave Ramsey’s 8% withdrawal rate.

I absolutely slogged through the intro of The Lost Supper: searching for the future of food in flavours of the past. I figured I’d give the first chapter a whirl and then give it up if I wanted to. But by the middle of that first chapter I was absolutely hooked! It’s a fantastic combination of history, storytelling, food and the environment and I haven’t really been able to put it down. Info-heavy non-fiction can often be difficult to get through but this book is pretty interesting for those of you who enjoy the history of food.

Stay in your rooms!

The Eldest has covid and The Youngest has a gastro so the air purifier is going at full tilt today. Poor Mr. Tucker has been running around trying to make sure everyone has their needs met. Luckily, we always keep some frozen meals around for weeks like this – we learned the hard way that it was much better to have an emergency stash of ready-to-heat-and-eat meals vs. ordering takeout. It was frozen lasagna and spinach salad to the rescue last night!

Tonight will probably also be an easy-ish dinner because Mr. Tucker is working long hours and we have a bunch of things happening this week: the contractor is coming to replace the broken front window, appliances for the condo are coming & Mr. Tucker is supposed to go out with friends this weekend…although that probably won’t happen unless we’re all testing negative.

C’est la vie.

What is our early retirement draw down plan?

What is our early retirement draw down plan?

What I’m reading & listening to
• Ok, this isn’t *reading* per se but it is a fantastic interview (podcast?) with Tim Ferriss and Morgan Housel. If you haven’t read Housel before, I highly recommend his work and his blog.
• Also in the *not reading* category is this podcast called Backlisted that I want to check out. I am not a podcast person generally but I am fascinated by old books that have fallen out of fashion.
Walks, tech and protein: parenting your parents.
• Are you the victim of the friendship recession?
The Best Laid Plans it is never too early to have your affairs in order, or quit working once you’ve reached your FI number.
Is an $100000 salary enough for a comfortable life anymore? (sub)

I generally enjoyed this article as it was more measured than most pieces. People were honest with their indulgences. Of course my brain honed in on this particular section though:

“In Edmonton, one of Canada’s most affordable larger cities, Liam Hudson has no trouble fitting all his expenses, aggressive savings and some travel into his household budget. The 32-year-old civil servant, who earns $106,000 a year, lives frugally. He drives a second-hand 2006 Buick Rendezvous. He tracks his spending meticulously. And he has made it a habit to put $250 every other week into his RRSP and another $100 into a tax-free savings account, even though he already has a generous government pension.”


He should be prioritizing his TFSA if he has a pension. Unless this guy plans to retire early & withdraw that money to live on, the RRSP forced draw down will be a nightmare in taxes at 71! The RRSP is a *tax deferral vehicle* which means that yes, every $1 you put into your RRSP you reduce your income (and tax payable) by $1 but eventually the government forces you to draw from it by a certain percentage every year (depending on your age) starting at 71. So if you have a full pension and suddenly find yourself being forced to withdraw from your RRSP you could potentially be pushing yourself into a higher tax bracket in retirement. Ouch!

“BUT,” you may think, “YOU PRIORITISE RRSPS!”

That is absolutely true! In fact, one of the things that is going to save us from paying capital gains when we sell the condo is that Mr. Tucker and I have a lot of contribution room left in our RRSPs. In Canada, contribution room rolls over indefinitely so you accumulate – and keep – your ability to contribute to your sheltered accounts over your lifetime. This is handy because if you make under $65000 it is generally not worth it to add money to your RRSP but since the amount rolls over and you keep it until you CAN use it, that $11700 (18% of your gross income to a max of $30780 in 2023) will stay on the books so that you can use it later and get the tax break. So when, say, you make $100000 20 years in the future, you can use it to reduce your taxes then.

Of course, some financial experts are saying that the TFSA should be prioritized first because it allows for tax-free growth over the course of your life, which makes sense for everyone. But we are leveraging the RRSP for now and the reasons are multi-fold:

– Mr. Tucker makes a good salary that is in a high tax bracket.
– Reducing his salary generally results in a high tax refund.
– The capital gains from the condo will result in pushing my yearly salary into the top tax bracket. So any reduction in that will mean less taxes go to the government.

It also helps that he plans to retire early so he can take money out of his RRSP when his income is zero and pay less taxes. There is no age penalty to draw down your retirement accounts in Canada.

So our plan is generally as follows:

When Mr. Tucker is retired and has zero income (we will be living on what I bring in), we will not touch the RRSPs until the kids are out of school. This is because of Canada’s Child Credit Benefit (CCB, colloquially known as the Baby Bonus). With his income being zero we can maximize the monthly CCB amount we get from the government until the kids are 18.

When The Youngest turns 18, Mr. Tucker will start to take out the Basic Personal Amount (BPA). This amount is currently $15000* for 2023. This is the amount every Canadian can make in income without paying taxes on it. You would only start paying taxes on $15001 and higher. Unfortunately, the BPA still lowers your monthly CCB payment as it is calculated using gross family income, which is why we are waiting until the kids are ineligible for the benefit. Interestingly enough, the TFSA maximum contribution is $7500 per person for 2023 which perfectly squares with the BPA of $15000. Yes, it will be more in the future but we will have to calculate it down the road.

The goal here is to minimize taxes down the road by moving money from the tax-deferred RRSP to the tax-sheltered TFSA when Mr. Tucker’s income is zero. Both buckets have the ability to grow tax-free over time but only the TFSA is tax-free when you take money out.

Of course, this is a generalization of the plan that will depend on the TFSA contribution room for us both, the amount of the RRSPs when we start to draw down as well as projections for the Canada Pension Plan, Old Age Security and Guaranteed Income Supplement. I suspect that we will end up drawing down the RRSPs and paying a bit of tax upfront so that we aren’t forced to withdraw minimums at 71. But because so much will change in the 20 years, it is ok to have a general plan for now and adjust as necessary.

Overall, the goal will be to reduce as many taxes as possible in retirement and maximize the benefits available. Who even knows what will happen with the TFSA and RRSP in the future? There is talk of eliminating the minimum withdrawal at 71 and so many things can happen between now and then that this is just a roadmap based on the current rules.

Life, nah, nah, nah, nah
In other news, The Eldest came down with covid over the weekend. The rest of us are all testing negative but she is holed up in her room convalescing. Thankfully, she is having an easier time of it than when she came back from Paris and was violently ill. That’s probably because she was in peak immunity due to having her booster two weeks ago!

Today, my plan is to get through some of my library books. Although I think a New Year’s Resolution should be for me to actually write down where I get book recommendations from (I always forget and so I can’t credit the source), I have surprisingly been unable to put The Lost Supper: searching for the future of food in the past down! I slogged through the intro and was worried that it would all be similarly boring but it hasn’t been! Despite being exhausted, I ripped through the first section and got through half of the second before I couldn’t keep my eyes open. He is such an engaging storyteller, interspersing fact with history. I am 1/3 of the way through it and will probably finish it today.

I got the new schedule for the condo fees today and so I am glad that the appliances are coming Friday and we can get the condo on the market. I know I say this every time I mention it but we are so done!

Have a lovely Monday, kids!

*Yes, he will have to pay taxes upfront on the amount that comes out of his RRSP that we will get back at tax time so he will actually be withdrawing more money here. But to simplify things for this example, I’ve stuck with that BPA amount.

Did the 4% rule work if a Canadian retired in 2000?

Did the 4% rule work if a Canadian retired in 2000?

I love this article from the Globe and Mail (sorry kids! Sub only!But please sub to at least one Canadian paper and one magazine a year to support homegrown content /soapbox) but here is what I think the most important takeaway is:

The bursting of the internet bubble provided a real-time test of Mr. Bergen’s “4 per cent rule,” which brings me to the hypothetical Canadian investor who started their retirement at the end of August, 2000. They began with a $1,000,000 portfolio. Half was invested for growth in the S&P/TSX Composite Index while the other half was invested for income in the S&P Canada Aggregate Bond Index.

The investor took $3,333.33 out of the portfolio to live on at the end of each month (a 4-per-cent initial annual withdrawal rate) with the payments being stepped up each month to adjust for inflation. (The figures herein are based on monthly data with reinvested distributions, but they do not include fund fees, taxes or other trading costs. The portfolios were rebalanced monthly.)

(Yeah, the 5% seems to be missing)

This is absolutely great news — unless you were that 6% guy. Ouch!

Optomizer vs Satisfier

Optomizer vs Satisfier

Here I am satisfying my need to consume university-priced pitchers at a local brewery last night at book club. It was a $20 night out, which never happens!

I am not an Optimizer. Granted, I LOOOOOOVE reading blogs that get into the weeds with detailed tax, investment and savings strategies but I am not that person. I enjoy a rousing debate and when personal finance keeners bring out the calculators and start fighting, I make some popcorn and watch. But I am not that person.

I don’t budget down to every penny. I don’t know the asset allocation of every ETF available on the market. I just see which ones have the average allocations that represent the markets/indexes/regions I want (and the fees I don’t) and then I push the BUY button. I know that this makes some people deeply, deeply uncomfortable.

But here is the thing: I know SO MANY PEOPLE who just walk into a bank/sign up for a salesperson to take 1% of their money (whether they are good at making YOU money or not) and then they just wipe their hands and walk away. They feel confident that a “professional” is taking care of their money when they are truly getting scammed.

Conversely, I know people who are DOING NOTHING. Scared of the stock market, they let their cash accumulate in accounts where their cash is being slowly eroded by inflation. Even sticking that into a 5% GIC would be at least doing something that would at least be stemming the hemorrhage of your buying power to inflation.

Both of these kinds of people are doing the exact same thing: they don’t trust themselves enough to learn the basics and they are scared that they will lose everything. So they make the most inefficient decisions possible because it feels comfortable.

Don’t get me wrong, I think money psychology is super important. You have to make decisions that help you sleep at night. But I feel like you can only make those decisions if you have all of the facts and oftentimes people don’t. They try and play it safe because they don’t know (or don’t want to learn) the basics of how to invest and in the process they allow themselves to fall victim to a predatory financial sales community or lose their money as it gets eroded by inflation over time. Sure, it may feel good to be stagnant and/or ignorant today but what this means is that you will lose your access to a secure or even bountiful retirement. The longer you wait, the more you lose.

People often get the impression that I know the ins-and-out of the stock market because I do enjoy discussing it, either in our Money Mondays group or with friends. But in reality I only really know how the basics work. And more controversially, I truly believe the following things:

1 – Most Financial Advisors don’t know more than you could learn on your own by reading a few books. Still scared? Get a fee-only FA. They are worth the money to help build you a plan without draining your nest egg.
2 – The average person doesn’t need to know much more than the basics of the stock market (although, I do recommend they learn as much as possible!).
3 – Inflation is like losing money every year. We tend to feel good psychologically if our $100000 stays at $100000 from one year to the next. But, realistically you can only buy $97000 worth of goods this year with that money when inflation is at 3%. That’s actually a $3000 loss that you don’t see.

Things that you do need to know:
1 – Invest regularly, preferably you can set it up to automatically fund your accounts and then forget it(ish).
2 – How ETFs/Index funds (and maybe even Robo-Advisors) work.
3 – Know what tax shelters are available to you in your country and learn how to use them (ie: retirement accounts)
4 – Only look at your accounts once a year.

Some people are on the cusp of having a coronary just reading that. But I am not an Optimizer, I am a Satisfier. I am satisfied to point myself in the right direction and then hobble down that road. I am not sprinting to some ridiculous goal of making my bajillions on stock tips, I am looking to make a decent decision (buying the index for an average return) while minimizing my losses (fees, inflation). The average return of the S&P is 11+% (1957-2021) and the average return of the TSX is 9+% between (1960-2020). So logic dictates what Jack Bogel introduced to the world: if you buy the entire thing as an index fund, your returns will follow the market.

Of course, I am simplifying things (and nothing works out 100% of the time) but that is the beauty of it: it’s that simple! You don’t need through reams of company reports and a deep knowledge of how every company you buy works. You just need to know that you are heading down a road that even when it gets winding and rocky (when the average return is down, like last year) will eventually take you to where you are going. As a satisfier, that is good enough for me. You give up huge gains for steady growth and the ability to sleep at night.

I do my budget the exact same way. I lay out all of the mandatory things (bills, savings) and set it up to come out of my account as much as I can. Whatever is leftover is mine to do with what I want. I don’t do a zero-budget where every single penny has to be allocated like an Optimizer would. Being a Satisfier, I just have to be concerned about my obligations and then the rest is mine to toss around. Of course, I am frugal in many ways (how does a green bean know that it is a generic vs name brand green bean?) and that allows me to save more in my day-to-day life on things I don’t care about. But that means I can just allocate more to my more expensive habits, like travel.

“BuT tUcKeR, aRe YoU sAyInG pEoPlE sHoUlD bUy InVeStMeNtS tHeY dOn’T uNdErStAnd?”

No. I am saying that they only need to know the basics, not become experts*. Historically, over time, the stock market always goes up**. If the bottom falls out of the entire economy, we won’t even have to worry about our investments because we will need to grab our leather thongs and fire guitars and wander out into the Mad Max desert.

If you are still worried, PLEASE, PLEASE, PLEASE read JL Collins’ book, The Simple Path to Wealth which will give you more info to change your life than any other book out there.

*I am not a Financial Planner nor do I play one on tv. Quite frankly, they’re probably acting too.
**It doesn’t mean it always will in the future but again: we’ll have bigger problems if it comes to that…



We have a motley little group of people who get together for what we call Money Mondays. Last week I spent 8 hours doing the write-up below & accompanying deck. It isn’t edited & it’s meant to give an overall view, so it is very lean on details. However, I thought some people may enjoy it so I’m posting it below.

Having said that, I have also recently come across these three interesting articles on retirement, which I found super informative.

Running out of time before running out of money

Most retirees will never spend down their portfolio

Why retirees go broke


Basically, the way you should look at them is as if they were buckets. They are just holding places for where you put your money. On their own they are nothing – just places where you can stick money. If you put $100 in each of them today, you would have $100 in 20 years.

BUT, within the buckets you can hold almost any kind of investment: bonds, index or mutual funds, GICs, etc. (OBVZ not real estate) and the investments are allowed to grow tax-free within these buckets.

Lexicon issues

Part of the confusion surrounding these two (buckets) is the way the finance industry speaks about them. For example, “my RRSP made $1000 in interest last year” is technically correct but what it really means is, “the investments INSIDE my RRSP made $1000 in interest last year.” Some people think they can just stick money into the bucket and leave it. You can but you won’t make any interest on it. Unlike the low interest you may get in chequing and savings accounts, TFSAs and RRSPs generate ZERO interest on their own. You need to choose an investment to generate interest.

What the hell is a pre-tax dollar? The language around RRSPs is often confusing with many articles stating that you will “get half of the money back” when you contribute to an RRSP. That *can* be true – if you are a high-income earner – but it is generally much less than this.

A pre-tax dollar means that you can save money in an RRSP BEFORE the government taxes your salary. So if you make $55000 a year, and you put $6000 into an RRSP, the government treats your income as if you had made $49000 instead. So the government returns the taxes that you “overpaid” on that $6000 when you contributed to your RRSP.
With Group RRSP plans and Pensions, your Pay & Benefits department usually already adjusts your salary based on your contribution. So you get more in your pocket every pay but you won’t see as much of a “return.”

What the hell is an after-tax dollar? That is basically money from your NET pay. You’ve already been taxed on it.

Two notes

Tax brackets: If you will notice in the above example as well, an RRSP contribution can bring you down a tax bracket:

– On the first 0-$49020 the tax rate is 15%
– On the next $49020 to $98040 the tax rate is 20.5%
– By contributing to an RRSP, that (appx) $6000 is escaping the fate of being taxed at 20.5%

(we can discuss how progressive taxation works another time)

A note on pensions: You will notice that above I mentioned that Pay & Benefits departments usually reduces your tax-payable at the source when calculating how much tax to take off of your paycheque. That is because Pensions and RRSPs use the same contribution room calculations. So if in 2021 you contribute $20000 to a pension (if you are in the max RRSP category), you will only have $7830 left in contribution room should you decide to contribute to an RRSP. It’s all treated as retirement savings.

So how do I choose which one to contribute to?

The basic rule of thumb (I hate rules of thumb) is that if you make less than $50000 you should contribute to a TSFA and if you make more than $50000 you should contribute to an RRSP. But those rules only apply if you DON’T have a pension.

If you do have a pension? Likely, a TFSA (unless you want to retire early).
If you don’t have a pension? Ideally: both. If you can’t do both, RRSP.

The reason for this is that the RRSP is actually a TAX DEFERRAL PROGRAM. The way it works is that you contribute to your retirement during your high-earning years and receive a tax incentive to do so. Between now and retirement your nest egg will grow significantly & tax-free until you go to take it out. The logic is that when you retire your income will be reduced significantly so that when you take money out of your RRSPs you will be in a smaller tax bracket.

A very simplistic example

So let’s play with an example. Say you make $65000 a year and because you are super diligent and amazing and basically don’t exist, you max out your RRSP from the time you are a wee bairn with their first job. So you contribute the maximum – $11700 a year – until you are 65. Give yourself a pat on the back, you non-existent person you!

To make it easy for our example, we are going to assume that nothing changes (no raises, no tax bracket changes, market doesn’t crash etc.) but guaranteed all these things will change. Still, we put our money into index funds which make us a return of 5% a year, compounded for 25 years. So it looks like this:

$11700 x 5% with $11700 added every year and compounded over 25 years = $621353

Another rule of thumb (ugh) is that you need 70% of your working salary as your retirement salary. In the case of this example, that would be a gross income of $37310*.

So without getting into the niggly details, let’s assume that the government is going to give you $18000 a year** meaning that if you want to hit that $37310 amount you are going to have to take out $19310 from your RRSP. Luckily, you have it!

But the devil always gets his due, WHOMP WHOMP and you find yourself paying taxes on that $19310, which means you have to actually take out $22207 to pay off your $2897 tax bill.

Still, when you were working you had been paying 20.5% on any money you made over $49000 so you got a bit of a break there and you saved yourself 5.5% in taxes on the $11700 you put into your RRSPs, so it’s a minor win.

Still, even when the tax brackets don’t switch or the amounts are marginal-to-poor, the biggest boon is the ability to have your money grow and make money within the RRSP without paying capital gains on it***. Had you saved the $11700 a year and not invested, you would have $292500 – a far cry from the $621353 above!

*Wait! Why not $65000 x 70% = $45500?! Because I am calculating it on $53300 because that is what you were living on BEFORE as you had actually put $1170 into RRSPs every year: 65000 – 11700 = 53300.
**They won’t
***Capital gains are when you make money on something, 50% of the amount you made is added to your salary and taxed at that tax rate.

We’ll get to more on Pensions, TFSAs and taxes in a minute but wait, there’s more…

A note for Chicken Littles…

A lot of gums flap about how programs like CPP/OAS/GIS won’t be there or will be bankrupt when we go to retire. Honestly, CPP itself is in a pretty healthy state so far which is also why you are seeing the rates go up a lot. I love when I see old, cranky Conservatives go on about how THEY PAID INTO IT and how they want more but none of us really pays what we put in if we live to a ripe old age (some of us will die early and thems the breaks!). CPP is at its core a pyramid scheme so as long as people are working and paying, the longer it will exist.

Also, if these programs go POOF likely the entire economy – or maybe society itself – has collapsed and we’ll have bigger worries than this. I think the finance industry has a vested interest in convincing us to save more by convincing us we can’t rely on it.

Screw rules of thumb, a diatribe

So you aren’t – and I am certainly not – average. A friend and I have discussed our retirements together and she can’t see her expenses going down by 30% at all! So she will need to adjust for that shortfall.

In fact, this is the case for a lot of retirees who often travel, take up hobbies, help grandkids etc. Also, more and more people are heading into retirement with debt be it a mortgage or consumer debt so a reduction just isn’t feasible. We won’t even speak about disability or the price of an LTC!

Conversely, in my household we are spending a lot of money raising two kids as well as saving for their educations. When the girls leave so many of the categories in our budget will go down, from clothes to food to entertainment. Even still, our family is currently on an extremely tight budget for the next three years and we are saving over 50% of our income. What this tells us is that when Mr. Tucker retires, we can reduce our budget exponentially in a couple of different ways and still leave us a pretty good life.

So look at your situation and see if you fit into the industry’s perfect idea of a retiree, I bet you may not!

Choose your own adventure! I have a pension:

If you have a pension, you don’t want to have a HUGE RRSP (unless you plan to retire early but that is an ENTIRE presentation in itself). That is because pensions replace 70% of your income already and when you take money out of an RRSP that gets tacked onto your taxable amount. That’s not particularly bad if you want to take out a few thousand a year but once you hit 71, all hell breaks loose.

At 71 the government forces you to turn your RRSP into an RRIF. We can discuss those in detail at a later date but what is important to remember is that in a RRIF the government FORCES you to take out a percentage of the money every year. The amount increases the longer you live (you can see a chart here) from a 5.40% withdrawal rate at 72 to a 20% rate at 95 or older! So if you have a pension bringing in $60000 a year and you are 80 years old with a RRIF worth $600000, the government will force you to take out 6.82% of your RRIF bringing your taxable salary up to $100920! OUCH IN THE TAX PLACE!

So this is why it is recommended that people with pensions hit up the TFSAs first. If you were 18 before 2009 you have $75500 worth of lifetime contribution room and it goes up (appx) $6000 each year. The money still grows tax free from your investments in the TFSA bucket but the difference is that you aren’t taxed on the money when you take it out. So you won’t get fucked in the butthole by the forced RRIF withdrawal rules.

Different situations:
– It could be worthwhile to contribute to RRSPs as well, especially if you feel you want to top up that 30% that your pension doesn’t cover. I would do the math to figure out the TFSA vs. RRSP contribution amounts.
– If you have a common law partner without a pension, you can income split at 65. You can also split RRIF income so if your spouse made significantly less than you during your working life, spousal RRSPs or splitting RRSP/RRIFs may be right for you.
– If you plan to go to school in the future you may want to contribute to an RRSP to get the tax benefit and to take up to $20000 out for the Lifelong Learning Plan (LLP). The LLP can be used for you OR YOUR PARTNER. You have to pay it back within 10 years but it’s better than a loan.
– If you plan to buy a home and want to use the Home Buyers Plan (HBP). You have to be a first-time home buyer to use the HBP (there are exceptions such as disability) and you can take out $35000 and have to pay it back over 15 years. Again, good if you want to take the tax break and buy a home.

In both the above scenarios, even having $55000 to get an education and buy a home won’t drown you if you have to use an RRIF down the road so it may be a good idea to have some money in RRSPs even if you have a pension.

Choose your own adventure: I don’t have a pension & don’t make a lot of money:

The TFSA was really a program brought in to allow low income earners to save money and reap benefits that the high-income earners got with the RRSP. Since you don’t save a lot in taxes when you are a low income earner, the only real benefit of the RRSP before the TFSA came along was the lack of capital gains on what your investments made.

The TFSA works well because the amount you take out of it isn’t clawed back by the government programs. If your primary source of income is going to be CPP/GIS/OAS using TFSAs means that when you take out money without having your primary source of income reduced. When you use RRSPs, that changes your calculation of your yearly income thus reducing the amount from government programs.
Right now – let’s assume you have never contributed to a TFSA – if you were 18 in 2009, you have $75500 in contribution room in your TFSA. You will also get $6000 worth of room for the next 20 years. Assuming that you decide today to max out your TFSA by the time you are 65 and you are 40 now, you will need to contribute $9020 or $752 a month for the next 25 years. At the end of that 25 years at 5% compounded, you will have $479225.

I admit, that is really high for a low-income earner in after-tax dollars. But let’s do the math with various amounts:
$100 – $63729
$150 – $95593
$200 – $127458
$300 – $191186
It could also just look like you using your tax return to fund your retirement.

Choose your own adventure: I don’t have a pension but I make a good salary:

This is where RRSPs truly shine! You want to max that 18%, baby! Did you already do that? Let’s hit up that MOFO TFSA for some investment action! Honestly, you can’t really go wrong here. Just put all the money in all of the things, is your motto! I think it’s unrealistic to think you will have $33830 to max them all out but maybe you do? I don’t know your life!

Your situation is similar to the non-pension low-income earners except you probably have a more high-falutin’ lifestyle you will need to support. So you are better off taking the tax break now, having more money down the road, and accepting the clawback on government benefits.

The HBP and the LLP are both great programs that you should take advantage of if you want. A strong caveat that if you can both save for a house/education AND max out your RRSP you should do that. Losing 15 years of interest payments can really hurt the end result of your retirement strategy.

You can also pension-split RRSPs/RRIFs when you are 65 so it may be worthwhile to run the numbers on how to fund an RRSP. For example if the husband’s 18% is $20000 but the wife’s entitled to the maximum of $27830 and you only have $30000 the smarter thing would be to fund the higher-income earner from a tax perspective because you can income split down the road AND you are probably dodging the highest tax bracket.

Choose your own adventure: I don’t have a pension but my work has a group RRSP:

Max it out. It’s free money. Don’t ever say no to free money.

Most employer-sponsored plans have rules such as:

– Company will match 100% of your contributions up until 3% of your gross salary
– Company will then match 50% of your contributions up until another 3% of your gross

Honestly, it’s the best deal going. Turning it down is like saying no to a 4.5% pay raise.

So which is better TFSA or RRSP?

This argument has gone on forever with some people claiming that they are equal and some claiming that one is better than the other. I feel like it’s splitting hairs but here is a really long and complicated article detailing everything you need to know about TFSAs/RRSPs/OAS/CPP/GIS. Sadly, the answer is always: DO THE MATH.

At the end of the day just save something, anything, somewhere, hopefully in an investment that AT LEAST beats inflation.

One of my favourite quotes is “The best time to plant an oak tree was 20 years ago. The second best time to plant one is now.” If you are feeling overwhelmed and behind right now please don’t, you are not alone. At the end of the day doing something is always doing nothing and even if you don’t manage to get a million dollars in the bank would you rather be 65 with $100000 in the bank or 65 with nothing? It may not seem like a lot of money in the grand scheme but it is money that could dig you out of a very big hole if you need it!

Note: I use The Calculator Site but if you want to use your own, YMMV.