Wednesday, February 16, 2011

Starting RRSPs in Your 40s

I'm not quite 40 yet, but it's so close, I can see the glow from the candles on my 40th birthday cupcake! For all sorts of reasons I have never, until recently, contributed to my RRSP.
Why, you may ask?
Well, when I was younger, the thought of retiring someday never crossed my mind.
In my 20s, I hardly worked some years, and was trying to hard to make ends meet with my pitiful income. Back then I thought I had lots of time to save for my retirement.
In my early 30s, same thing. I thought I had lots and lots of time. I was upgrading my schooling, and then embarking on a new career. I was married at the time to a man who had a fantastic pension, and I believed he would look after me in my golden years. Exciting stuff! Retirement was far from exciting, it was for old people.
To tell the truth, for the last 5 years or so, I have been deluding myself by saying that I will likely work well into my 70s. No early retirement for this girl! And although that may actually have to happen, I don't really want it to.
Now, a couple months shy of 39, I'm looking at things in a whole new light.

Several months ago, I realized how old I was getting. Not that almost 39 is old, but the length of time I have left to save and invest for my retirement is getting shorter and shorter. I'm a grandmother now, and I don't think that I want to be working into my 70s. I may want to spend some of that time with my grandchildren, the one that's already here and the ones that will come in the future.

It got me thinking about how I planned to pay bills if I was no longer working.

My CPP contributions are an absolute pittance. If I were to compare them to someone of comparable age who works as an employee full-time, the differences are amazing. The number of years I've been contributing to CPP is also laughable.  I don't remember ever getting a statement from CPP, but I'm sure if I looked at it, it would look like the statement of a person in their early twenties, who has just started their career. You can view and print a copy of your Canada Pension Plan Statement of contributions here .

Likely Old Age Security would also be available to me, and the Guaranteed Income Supplement, if my CPP was my only source of income during retirement. That means I would be dependant on the Government of Canada and my current husband, to provide me with any income during my retirement years.

I don't like that idea so much. Hubby is more than willing to provide for me with what he has available to work with. But if my only contribution to our retirement income is CPP and OAS benefits, we're screwed. I don't want to be eating Spam and never doing anything, or going anywhere because we can't afford it.

The single most important thing that I took from Gail Vaz-Oxlade's book, Never Too Late, is that you MUST SAVE! Saving is a habit that must be formed, no matter how little money you begin with. "If you've never set a penny aside, making just a small commitment today can make a huge difference to your financial future". The important thing is to Start.

My financial goal for my RRSP this year is to have set aside $3600. I decided not to go the route of trying to decide how much money I will need in my retirement years, and guessing as to how long I will live, guessing at the rate of inflation over the next decade or two, and multiplying it by some crazy formula that requires a Master's Degree in order to come up with some insane amount of money that I will need to have accumulated by age 65. I don't want to set myself up for failure or scare myself into doing nothing. I want to be able to see what I can do with what I have.

My largest asset to my retirement is my ability to earn an income, now, in the next 26 years, and maybe even for awhile after that. This is what I need to utilise to my full advantage in order for a decent retirement. The money I will have amassed at that point may have to last a long, long time, as I plan on living forever. Just kidding! Every year between now and then, if I can focus more on saving and less on spending, I should be able to come up with something fairly decent, even if it isn't The Magic Million or three.

To get my $3600 this year, I will have to make 144 deposits of $25. I have already made 5, so I have 139 left to go. I have a direct deposit set up to deduct $25 per month from my account automatically, which brings it down to 129 deposits. In late Spring and early summer, I will likely be able to contribute the bulk of these deposits over a couple of months, and then just keep the automatic deduction do the rest. It's not the best game plan, but it's what I have right now. I'm trying to build the HABIT of saving while pushing the edges of my comfort zone a little farther, setting the stage for more dramatic deposits over the next few years.

I may never hit the crazy insane number that a retirement calculator will tell me that I have to amass by retirement time. I may never even use up all my unused RRSP contribution room. What I do know is that every dollar I set aside now is one less that I will have to cut out of my post-retirement budget. I know that having a comfortable retirement will be the result of choices we make today and tomorrow.


  1. Eboo, I really feel for people who have no pension plans through work. It would be very hard to plan your retirement if you needed to provide for your retirement income independently.

    I started paying into my pension plan at work at the age of 21 (I'm now almost 45). Hubby started paying into his work pension plan 11 years ago. Assuming our pension plans are healthy and well funded, we should do okay with these earnings in conjunction with the government pensions.

    Our RRSP and TFSA savings will pay for the "extras" so we don't have to stress TOO MUCH over how much we'll actually have saved. We are aiming for $300,000 but will likely be fine with much less.

    I think you are wise to just set aside what you can. With retirement possibly 30+ years away, you can't really plan what you'll truly need. Just save. That's the best strategy for you at this point!

  2. I was one year older when I started. It's very overwhelming to start with but the key start. You have a well thought out plan. Congrats on taking the steps!