One of my goals in 2014 was to save $6,000 in my RRSP. This is my first time ever doing any long term saving, so I thought $6,000 seemed like a solid first time goal for a newbie retirement saver like me. I also thought $6,000 sounded like a good number because this is also my first time investing money, and I didn’t want to put $10,000 of my hard earned cash into an investment account before I knew what I was doing. Let’s take a look at the what, when and where of my retirement savings, and then see what the plan is moving forward.
How I Saved $6,000 for Retirement in One Year
The $6,000 amount originally came from what I was comfortable saving per month. $6,000/12 = $500 per month. Since this was the amount of my old minimum debt payments ($300 student loan payment + $200 car payment), I knew I’d be able to handle putting this much money away every month without a problem. There was also something a little poetic about this fact: Literally the same amount of money I used to be putting towards paying down interest charges, is now going towards earning me interest. A much better use of my money in my opinion. So when I get paid every week, I automatically move $125 into my RRSP. There is no thinking about it, it’s just what I do every week. This kind of automated transaction makes saving very easy.
Where I Saved $6,000 for Retirement This Year
Now, I’m not going to get into the nuances of the TFSA vs. RRSP debate – that’s a job for more experienced people than myself. There are pros and cons to each, and I chose what I chose because I know myself and my own spending habits. When it came to choosing between using a TFSA and an RRSP for my retirement savings, I ended up choosing an RRSP for a few reasons:
- This is my first time saving for anything long term, and I didn’t want to be tempted to withdraw the cash. With an RRSP, I would get seriously dinged for withdrawing the money, versus a TFSA, where there is no penalty.
- I can still withdraw the money for big, life changing things like buying a house and going back to school, so there’s some flexibility.
I have my RRSP invested in Tangerine Balanced Growth Portfolio, which is recommended by personal finance experts I trust as a good place for newbie investors with a medium risk tolerance to get started with their money. To figure out what I should invest my money in, I read the great personal finance book, Millionaire Teacher. I found this book to be an awesome introduction to index fund investing and building wealth in general – I highly recommend it!
Why I Saved $6,000 for Retirement This Year
I’m pretty sure I’m the only 25 year old I know in real life that has retirement savings. (Fellow PF Bloggers don’t count!) Most people my age in my area are more concerned about how much beer they’re going to drink this weekend. It definitely makes me feel like I stick out when my peers complain about being broke or drowning in student loan debt, and I’m sitting here with my little nest egg.
The thing is, by starting to save for retirement now, I’m going to have to save a lot less later. If I kept saving $500 per month until I’m 65, assuming a rate of return of 6%, I’ll have over a $1 million squirrelled away when it comes time to retire. If I waited ten years and only started saving at age 35, I’d only have $539,000 by age 65. That’s a huge difference! If I didn’t start saving for retirement until age 35, I’d have to save at least $950 per month to get above the $1 million mark by age 65. That’s a big difference on a month-to-month basis.
$500 per month looks pretty good in contrast. If I can handle it in my budget now, I should be able to handle it easily as my income (and my husband’s income) increases. This is one of those situations where starting early really does make a difference, which is why I felt compelled to get started with my retirement savings, even though I’m still pretty young.
Future Plans for Retirement Savings
I’m still planning on contributing to my RRSP this month and next month – even though I’ve hit the $6,000 amount. I should end the year with about $7,000 in that account. In January, I might not be able to afford to make contributions, because my husband and I are moving to Halifax, and he’ll be unemployed for an undetermined amount of time, until he finds a new job. Once he’s back earning an income, we’ll resume our $500 monthly contributions. In fact, according to my budgeting calculations, we should be able to maintain the $500 per month even when he goes back to school for retraining, which is great news! This means I should be able to save another $6,000 in 2015.