A reader of this newsletter got in touch recently to ask for some thoughts on retirement. He’s 57, a single father of a teenager and recently got started saving for when he retires. “What would you recommend I do to make retirement as pleasant as possible?” he wrote.
I knew I had to get this question answered when I saw the details. This reader makes $60,000 a year and has saved $23,000. How many other middle-class people are there who are getting a late start on retirement saving, but doing so with a high level of commitment? “Life happened, and I find myself just starting to save last year for retirement,” this person wrote.
He’s putting roughly $500 to $600 away each month into a TFSA and RRSP at a robo-adviser and plans to work until age 70. He lives in a co-op with a rent subsidy and has expected housing costs of $800 to $1,000 per month.
I turned for help to David O’Leary at the financial planning firm Kind Wealth, who in turn called upon Sheldon Craig, a certified financial planner (CFP). “It is never too late to start saving for retirement,” Mr. Craig said. His key points:
- Delay Canada Pension Plan retirement benefits and Old Age Security to age 70: Doing so would increase CPP retirement benefits by 42 per cent and OAS by 36 per cent.
- Continue to contribute to the CPP while working from 65 to 70: “If during your career you had years of lower earnings before 65, they will automatically be replaced with periods of higher earnings after 65, resulting in an increase in your CPP pension amount.”
- Consider investing all contributions in the TFSA rather than the RRSP: The income this person receives at 70 may qualify for the Guaranteed Income Supplement and will be a factor in his co-operative rental subsidy agreement. TFSA income shouldn’t affect eligibility for these programs. Investing $600 per month from age 57 to 70 in a TFSA, using a conservative rate of return of 4 per cent annually, will generate approximately $140,000 (includes money already invested).
- Expect after-tax income of roughly $44,000 between the TFSA and RRSP investments, CPP and OAS. This amount does not include any GIS.
- Expect annualized housing and living costs of $42,000 annually at age 70, with inflation factored in.
“With an estimated net income of $44,000 at age 70 and estimated expenses of $42,000, [this person] will be able to enjoy a modest and comfortable retirement lifestyle that many Canadians would not find possible by waiting later in life to save for their retirement,” Mr. Craig wrote.
Editor’s note: An earlier version of this newsletter was sent with incorrect numbers on how much the reader below is putting into his TFSA and RRSP each month. We are resending it with the correct numbers and apologize for the inconvenience. Enjoy the newsletter.
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Rob’s personal finance reading list
For sale: Never-worn wedding dress
A sad story of people selling items on Kijiji because the pandemic upended their lives. Jobs lost, marriage plans interrupted.
Getting your act together to save money
I like this take on how young people can get their, ahem, s-*-#-t together to start saving money. Practical and to the point. Plus, this apt comment about reading get-rich books and blogs and finding them “filled with useless motivational quotes.”
Bitcoin, explained to conventional investors
A useful, no-hype primer for old-school investors who hold stocks and bonds and are curious about cryptocurrency.
Credit cards as a Plan B fund?
With their hefty interest charges, even low-rate cards are among the worst ways to pay for things in an emergency situation. That said, some cards are a better option for emergency spending than others. Minimal annual fees, with low introductory rates.
Ask Rob
Q: The pandemic has put my family in an interesting position where I’ve maxed out my and my spouse’s TFSA contribution room and will likely be able to max out our RRSP contributions later this year. We’ve been able to keep working through the pandemic and have not had any vacation expenses as we stay put, which has created a surplus of savings. So, what now? What can/should I be doing to keep saving?
A: How’s your household Plan B fund? While you’ve been fortunate enough to stay employed in the pandemic, many families lost jobs and income. Having money safely parked in a high-rate savings account is your best defence against sudden financial setbacks. Start with enough money to keep your home running for three months. You don’t mention kids – if you have some, adding money to their registered education savings plans is another good use of money. After that, you might consider spending some of your surplus savings in a way that celebrates the end of the pandemic and helps local businesses. Other thoughts – start a non-registered investment account or donate to charity.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Find out where Canada ranks globally in the cost of powering household appliances. Not too badly, as it turns out.
The money-free zone
Strong recommendation for Creation Never Sleeps, Creation Never Dies: The Willie Dunn Anthology. Mr. Dunn was a massively under-appreciated Canadian folk singer and activist on Indigenous issues.
What I’ve been writing about
- My bond ETF is down 5% – should I sell?
- Almost no one thinks what’s happening in the housing market is good for the country, reader feedback suggests
- A millennial investor wonders if his buy-and-hold approach is too simplistic
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: How to survive the gig economy • How to get out of debt • Is now the right time to buy a house? • Crisis-proof your finances • Does investing change during a pandemic? • Can you afford to live downtown? • The cost of kids • Should you move back in with your parents?
- ✔️ A 10-point pandemic personal finance checklist: Create a "wartime" family budget; stop worrying about bank deposits; clean out your big-bank savings account; get relief on car payments; get preapproved for a mortgage; WFH? Save $1,000 a month; save, save, save; build resilience by not anxiety-buying; consider the cost of mortgage deferrals; get ready for the second wave of financial distress.
- 📈 Investing: The case for a tight portfolio of big blue chips dividend stocks; robo-advisers beat human advisors (and they’re thriving), why online banks that are better than the branch; is it time to invest your 2020 TFSA; don’t get your mortgage at a bank; why it’s so hard to invest in preferred shares; stock up on stocks to retire early; and are you following the 10-year rule with your investments?
- 💰 Saving: Food waste is wasted money; why you might regret that SUV and find out if CAA is worth it; juice your PC Optimum points; how an ex-Bay Street lawyer got out of debt; blindly easy tweak to your retirement investments to survive economic downturn; should you buy that latte?
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob Carrick