Source: Getty Images
Written by Chris MacDonald at The Motley Fool Canada
First established in 1957 as a leading investing vehicle for Canadians looking to grow their wealth for retirement, the Registered Retirement Savings Plan (RRSP) has become an essential tool for long-term investors to not only retire, but do so well.
In my view, the RRSP is among the most powerful savings tools for Canadians, and particularly those who find themselves in the higher income tax brackets. That’s because contributions are tax-deductible. So, those who maximize the use of their RRSP each year will be able to save that amount on their taxes (at whatever their specific tax rate is), while putting money away for retirement.
While taxes will need to be paid at the time funds are withdrawn in retirement, saving more now for a bigger and brighter tomorrow is a good idea no matter what an investor’s age is.
With that said, let’s dive into what middle-aged folks in Canada currently have stashed away in their RRSP on average.
The whole debacle around mid-life crises often come about as we realize that about half our time on this planet is over. How we each collectively choose to spend the next half of our lifetime is really up to us. But 40 seems to be a turning point for some investors who are doing a reality check on where they are in relation to their retirement savings goals.
The average balance for those aged 35-44 in Canada, according to 2023 data, comes to $82,100 for those aged 40. Sadly, the median is actually closer to $33,000. That’s a pittance compared to what retirement can cost Canadians, given elevated inflation rates in recent years and costs of private healthcare services such as nursing homes and at-home care climbing at a much faster rate than what the CPI tells us.
Most financial advisors suggest that investors have three to five times their annual salaries saved by age 40. And with the median income in Canada sitting at just under $75,000 per year, that means that a balance of between $225,000 and $375,000 should be the target range.
Most Canadians need to save more for retirement. Jet setting, traveling the world, going on cruises and paying for the grandkids to come and visit can add up. And when the time comes to go to a nursing home, or if it’s the case that retirees want to leave something behind for their kids and grandkids, that legacy spending needs to come from somewhere.
For those looking to get back on track, having an idea of where one should be is a great starting point. For more information on how to get there, I’d say The Motley Fool is a great source of information on that topic – be you a stock picker or passive investor.