Saving $100,000 in my RRSP by Age 33

Now that I’m employed full-time again, I’ve revisited some goal setting in my savings. One of my main focuses (which seems to be intensifying as I’m getting older!) is saving for retirement. I like accumulating lots of retirement savings, not just for the security in my future old age, but also because of options like the First-Time Homebuyer’s Plan, which would let me withdraw up to $25,000 from my RRSPs for a down-payment on a home. Still, the primary goal of my retirement savings is net-worth building. These are long-term investments that I don’t plan to withdraw from for decades, but make me happy now to see a big balance on my personal net worth sheet!

Because my income is primarily from blogging and now a summer internship, I’m still not totally sure what my total income will be for this year, but I’m guessing it will not be high enough to be favourable tax-wise to contribute to my RRSPs. Consequently, I’m directing my savings to my TFSA, even though in my mind it’s still ear-marked for retirement. I can always transfer the extra savings from the TFSA to RRSP if I need the tax advantages in future years and/or continue to contribute a little bit to my RRSPs and claim the deduction later. My primary goal in the next 2 years is to max out my TFSA, and then focus on maxing out my RRSP.

I would like to have saved at least $100,000 for retirement by age 33.

Originally, I thought age 35 but since I’ll be about half-way to $100K at age 30 after only saving for 5 years, it doesn’t seem reasonable to expect less savings success in the 5 years following my 30th birthday! I think age 33 is a short enough time away (5 years) to be challenging but still doable. I’m actually hoping to exceed it, but I don’t want to sacrifice other financial goals for it so middle ground at $100K seems just right! As far as past and current progress though, this fits in just right:

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my retirement savings plan & progress (low savings rate for age 27 & 28 because I’m currently an MBA student!)

I made the savings right slightly more aggressive in later years for 2 reasons: 1) it’s more likely than not my income will be higher as I age and 2) as I save more money, more interest & dividends are earned each year helping me reach my goals faster. I’m hoping when I finish school and work full-time as a salaried employee again, I find an employer with a retirement matching program of some sort too!

Currently my retirement savings is comprised of cash savings, a mutual fund, and stocks in this proportion:

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While I love investing in the stock market in order to get a higher return on my money, as years go by I will want to reduce the risk in my retirement assets so I’m expecting by age 33 the distribution will look more like this:

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I’m not sure if I’m totally on board with having $15,000 of cash and $20,000 in mutual funds lying around — right now I’m hungry for more risk than that. Furthermore, because the stocks have higher returns, that account is growing faster than my other investments and I can’t really wrap my head around saving more as cash rather than buying more stocks, but that’s what I’d need to do to get this pie. Nevertheless, designing a rough framework gives me a bit of an idea of where and how to save.

The main component of this plan is just being disciplined enough to grow my retirement savings by $12,000+ per year, and the main risk is market fluctuations since the bulk of my savings is in the stock market. 

Saving $100,000 for retirement by age 33 is attractive for a number of reasons, namely that banking six-figures so early gives the nest egg a number of decades to grow before I need to make any withdrawals.

$100,000 invested at age 33 returning 5% will grow to nearly $500,000 by age 65 without any further contributions.

As per usual, I’m always advocating shortcuts, and I can’t think of a better one than getting six-figures into your retirement savings in your early 30′s!

Your Wealth-Building Cheat Sheet

I know some how-to posts are tiresome for the PF community, but sometimes it’s important to share old information in new ways for readers who are just getting started on their journey to wealth. Some of my friends and acquaintances have mentioned my blog has encouraged them to start saving & investing, but still don’t really know where to get started or where they want to end up.

I’ve created some simple tables to act as a “cheat sheet” for what kind of savings you need and where to keep it, as well as what investment vehicles you should utilize.

What kind of savings you need + in what accounts

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Explanations:

Your Emergency Fund should represent 3-6 months of essential expenses. You should keep this in a TFSA or unregistered accounts since these will have no tax repercussions if you withdraw the money.

Your Retirement Savings can be kept in any type of account, but more likely than not it’s in your best interest to max out your TFSA, then max out your RRSP, and then use an unregistered account for retirement savings.

Savings for school or a down-payment on a home can be kept in any account, but your TFSA is the best option followed by an unregistered account. The least desirable option but an option nonetheless is your RRSP, which allows you to withdraw up to $20,000 for school or $25,000 for a down-payment on a home.

Savings for a wedding or any other savings such as for a vacation, car, etc. should be kept in a TFSA or unregistered account to avoid any taxes when you make a withdrawal.

What types of investment vehicles you should utilize for each of your savings goals

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Explanations:

Your Emergency Fund needs to be liquid and readily accessible, so it should ideally be kept as cash but is also safe as a GIC — though you forfeit the interest rate of the GIC if you withdraw the money before maturity.

Retirement savings should be diversified across all types of investments, with the focus on investments with slightly more risk (like stocks) in your 20′s and gradually becoming more heavily weighted to less risky investments (like mutual funds, GICs and cash) as you near retirement.

Savings for school or a down-payment on a home should be in cash or GIC, but mutual funds are also acceptable if you’re not planning to go back to school or buy a home until 2 years from now or longer.

Savings for a wedding or anything else you plan to purchase in 2 years or less should be kept in the least volatile investment vehicles, like cash or GICs.

What investment vehicle you choose for any other savings depends on what that savings is for and its timeline! Savings you need to access in 2 years or less should be kept in cash or GICs. Savings for 2 to 5 years can be mutual funds, and for longer term investments for 5 years or more, common stocks, bonds, and ETFs are great options.

Ultimately what you save for and how you do it is up to you, but this is a simple breakdown for the new saver or investor!

Nothing is going to “work itself out”

Rant alert. I can’t be the only person who has heard the following from financially irresponsible people –

“I’m just living my life, the money thing will work itself out.”

Other variations include — “God will provide” and “Everything works out in the end”.

Just…no.

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First of all, the money thing is not going to “work itself out” without any effort on your part. Otherwise, why would ANYONE put any effort towards becoming financially secure? And you know what? A lot of things don’t work out in the end. The end is going to suck for those who aren’t ready for and/or extremely lucky. And if you believe in god, how are you possibly self-involved enough to think paying for your data plan is his top priority? C’mon, really?

In the end, there is exactly one person who can fix your financial situation, and that’s you.

Sure, you could pay other people to deal with it, but your personal interests will never be a priority over theirs. The government is not coming to save you, it can’t even take care of itself, so depending on its assistance on a long-term basis is not reasonable or intelligent in the least.

Your parents have absolutely no responsibility for your adult self, and if you mooch of your friends long enough, they won’t be around either. Your spouse could leave you tomorrow. Even worse, he or she could die. Your boss could let you go right now (especially if you are reading this at work). There is absolutely NO ONE in the world who is guaranteed to help you out when shit hits the fan.

I know this sounds pessimistic, but I swear I’m an optimist. I’m also striving to be a realist, which is more important than pessimism vs. optimism. Reality can be a scary place, I know. But facing it is crucial to your long-term financial well-being.

So now that we’ve gotten the reality check over with, let’s deal with this new reality. What do you do to insure yourself against the possibilities that could otherwise derail you completely?

Have skills. If you don’t have them, learn them.

Provided you aren’t the breadwinner in the family, what would you do if something happened to your spouse? What would you do if you got laid off?

Do you have a college degree?

Do you have skills that cannot be outsourced (manual labor, etc.)?

Do you have work experience either in a traditional office setting or through volunteering?

Know how to do something and keep up with your training, just in case you need it.

Diversify your income. Your job is likely your primary source of income. For many people, it’s actually their only income source. But what if you lose your job?

Do something on the side. Use those skills we talked about. Freelance. Do shit people don’t want to do. Make money working outside of your 9 to 5.

Even better, make money passively. Invest in dividend producing stocks. Become a landlord (which is technically considered “passive income” even though it isn’t). Make your money make money that you can tap when you’re in a bind.

Don’t spend everything you make. The amount you HAVE to spend each month should be significantly less than what you are bringing in. Feel free to spend more than what your needs require, but have the ability to cut your spending way back if necessary.

What do you do with the money you aren’t spending? Make it work for you! Provided you have an adequate emergency fund and/or checking account buffer, get the rest of those dollars making money immediately. Obviously, you should save for retirement, but non-retirement investments are important as well. After all, you don’t want to ever tap your retirement funds until you can do so without penalty.

Nothing is going to magically “work out” for you.

You need to care enough about your future self to make sure he or she is provided for if the worst case scenario went down. I don’t know about you, but I would be SCREWED if shit hit the fan right now. That’s why I’m actively working to put my current and future self in a better position.

Not Just Another Emergency Fund Post

Let me start this out by saying, I hate emergency funds. Not because they aren’t useful, but because they are boring as hell. They are the savings equivalent of paying for insurance. And no one wants to save for insurance.

Because I hate emergency funds (and because I’m in debt), I’ve never kept much cash around.

Why would I? I’m in a two income household, I’m a renter, I have car insurance AND a crazy big warranty, I don’t have pets or kids, and I don’t have any existing medical problems. Well, guess what? We all have our thing that could put us in danger of shelling out four figures or more for an emergency. My thing is my husband’s family living overseas.

In January, my mother-in-law died unexpectedly, causing us to buy overseas plane tickets and take three weeks off of work. The problem was, I had basically nothing savings-wise. Know what that means? The plane tickets and all travel expenses went on a credit card (as did some of our life expenses due to the lack of work). Our expenses were crazy high, because grief just isn’t frugal.

While I don’t regret ANY of the spending (because people, THEN money), it has opened my eyes to the importance of an adequate emergency fund.

You may have just about everything going for you, but emergencies don’t give a shit about your plans.

Prepare yourself now, no matter how unlikely you believe it is for an emergency to occur.

Guess what, guys? Dealing with the loss of a loved one is not the time to worry about money. While you can’t insure yourself against heartache and loss, you can have the money in place so you can grieve without finances weighing down on you.

Lessons learned:

1) When shit hits the fan, you best have an umbrella.

2) Don’t ever let something as trivial as money keep you from your loved ones. EVER. You wouldn’t trade your loved ones for cash, don’t prioritize it over them.

3) While I hate putting money in an emergency fund, I need to do so. Paying debt is more attractive, but what’s the point if I’m going to have to finance emergencies anyways?

We all have that thing that could ruin us financially without an emergency fund. What’s yours? Do you have enough in your emergency fund to accommodate it?

Stop making excuses for why you “can’t” save $25,000 for retirement by age 30

My 30 Financial Milestones You Need To Hit By Age 30 post recently went viral. It was met with a tremendously positive response, but there were a few naysayers in the mix. They seemed to congregate around one point of contention:

#5 – Have at least $25,000 saved for retirement by age 30.

Even the Globe & Mail’s Rob Carrick suggested this might be “unrealistic”. He wasn’t alone. Many people insisted that whether or not you can hit this target depends on your circumstances: what you studied in university, how much debt you have, whether you have to support yourself, when you started saving, blah blah blah.

Before we continue, I want to point something out. My original suggestion was that you actually have the equivalent of one year’s salary saved for retirement by age 30 — I was low-balling it with the suggestion of $25,000! In other words, I thought I was cutting you guys some slack, not making an unattainable target. Geez! When I push my readership for big goals or flex some of my financial muscles, I’m occasionally met with some disgruntled protests that I must have had some easy ride and therefore can’t sympathize with the average saver. Money After Graduation readers that have been around for awhile already know this is not the case, but for those with doubts let’s do this…

Bridget’s Brief Financial History 

  • I took time off between high school and university during which I did a whole lot of nothing and saved $0.
  • I have lived on my own, paying rent without any parental help since age 18.
  • My cheapest rent was $400/mo ten years ago and it’s steadily increased since then. I now pay $1,200/mo to live in Calgary, Alberta – the 4th most expensive city in Canada.
  • My parents did not pay a single penny towards my university tuition.
  • I will have spent over $75,000 on university tuition, fees, and books by April next year.
  • I paid off over $20,000 in student loans from my Bachelors degree in 22 months.
  • To date, I’ve only worked for 2 full-time years in a professional job in my 20′s.
  • I didn’t start saving for retirement until age 25 (I am now 28).
  • When I left my professional job to go back to school full-time, I forfeited my employer-match on my retirement contributions, a “loss” of over $10,000.

But what’s the most important point about my journey?

I have over $25,000 saved for retirement

(and 2 years to spare!)

So what I really want to say is there will be no whining about your debt load, lack of parental help, cost of housing, lack of years in the workforce, late start on saving, etc etc going forward. You will not get any sympathy from me. This is because sympathy doesn’t make dollars, and I’m assuming you’re here because you want money, not hugs. Let’s get started!

How To Save $25,000 For Retirement By Age 30

Step 1: Stop Whining. Seriously, stop. Like in my posts on how to save six-figures in seven years or increase your net worth by $25,000 annually, I will not indulge the reasons you can’t (aka. don’t want to) save $25,000 by age 30. The only real reason you might not be able to save $25,000 by age 30 is you are aged 31. No other excuses accepted.

Step 2: Do the math. You will earn between $300,000 and $400,000 (or more!) during your 20′s — and you’re telling me you can’t save less than 10% of that? Boo! If you start at age 20, even if you make a small salary you only need to save 6% of your income to bank $25,000 for retirement by age 30.

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chart assumes student is working part time at ages 20 & 21 and thus has a reduced income! Salary increases by 3% annually assuming regular, small raises.

If you don’t start saving at 20 then you have to save more when you do start! Sucks? Too bad, that’s math. If you’re a late bloomer like me and don’t start saving until age 25, you might have to save 10% of your income to reach $25,000:

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a late bloomer saver doesn’t put anything aside until age 25, at which point they start saving 10% of their income. Salary and salary increases are the same as the previous example.

Maybe now you can see how I made it to the $25,000 mark despite getting a late start. At one point I was dumping over $500/mo into my retirement accounts — talk about playing catch up! Which brings me to my next piece of advice…

Step 3. Get started ASAP! This is an urgent, please-begin-yesterday matter. Why? Because assuming you can achieve an annual return of at least 5%, every dollar you put away now is worth $7 at retirement 40 years from now.

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So next time you’re complaining that your part-time job is only paying you $10/hr, remind yourself that that is actually $70/hr for your 65-year-old self. Are you seeing why this is so important now? If you manage to bank the full $25,000 by age 30, you’ve actually saved $176,000 for retirement.

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Step 4. Manage your assets. If you can score every 1% higher average rate of return, that final number at retirement will soar above a quarter of a million dollars. Is $25,000 really looking like it’s not worth the effort now? The most important components of managing your assets are: 1) investing for the long-term (this means no crazy day-trading or chasing after “hot” stocks), 2) diversifying your savings. Try keeping some of your retirement in safe places like cash and bonds, some in moderate risk investments like mutual funds and dividend stocks, and the rest in growth stocks and ETFs and 3) NEVER WITHDRAWING THE MONEY. In Canada, you’re allowed to borrow from your RRSP for things like a down-payment on a home or to go back to school. This is a quick way to undo all your hard work! Do not eviscerate your RRSP to buy a home or pay tuition.

Where can you get the money to contribute to your retirement accounts in order to reach the monthly and annual contributions required to reach $25,000 by age 30?

  • work extra hours or at a part-time job.
  • ask for a raise.
  • take advantage of employer retirement plans or other benefits if available.
  • leverage a hobby or skill into something paid, like freelance writing or tutoring.
  • sell clothing, books, or electronics that you no longer need.
  • skip upgrading your phone/computer every year and hold on to your old technology for 3, 4, or 5+ years.
  • cut out a sinful expense that’s hurting your body and your wallet (ie. cigarettes or alcohol)
  • save instead of spend cash windfalls like an inheritance, graduation gift money, or income tax refunds.
  • skip an annual vacation.
  • put off a major purchase like a car, downpayment on a home, or a wedding for another year (or two!)
  • have 1-2 beers on Friday/Saturday nights instead of 3-4.
  • move to a smaller, cheaper apartment or get a roommate.
  • maximize rewards points programs so you spend less of your own money on things you need.

There’s so many ways!! Which is why I know YOU CAN DO THIS! Do it for the $176,000! Do it so you don’t have to eat cat food or live in a box when you’re old. You’re going to be of the wealthy in your old age, there’s luxury cruises and gambling in Vegas waiting for you, so start stashing cash for that fun!

Happy saving!