I dont get why my friends dont buy RRSPs. They seem like the best thing money can buy! Think about this: Lets say I make $30k/year. If I put 20% of it into my RRSP (registered retirement savings plan), or$6000, it decreases my taxable income to the level where I drop down a tax bracket and get a tax return of about $3000 more. So really Im spending a net $3000 to get $6000 worth of money! And after the first year, I can start putting the tax returns into the investment, to lessen the burden of what I have to pay each month. But wait, theres more. If I want to retire in 30 years, then that invested $6000 (which only cost me $3000) will be worth $45,000 (assuming an average annual gain of 7%). In todays dollars after inflation, thatll be worth about $19,000. So if I invest $6k per year, and increase it by 3% each year to cover inflation, then after 30 years Ill have invested $310,000 and that money will be worth $2.4 million. Then, once I retire, if I start spending that money at a rate of 6% per year, Ill have an annual income of $141,000, which after inflation will be worth $58,000 in todays dollars. So, spend $3000 a year now, to have $58,000 a year when I retire. Why arent more people doing this? Because were young and we think we dont have to worry about retirement, its years and years away... But the fact is, the earlier you start this, the more youll have, and the better life will be!
Posted on: Mon, 18 Nov 2013 17:21:34 +0000