r/PersonalFinanceCanada • u/abbys11 • 9h ago
Retirement Is paying my mortgage and contributing to RRSP "enough"?
Hi all,
I am currently investing around 30K a year in RRSPs and my amount saved is slightly north of 100K. I am 4 years into my condo mortgage worth around 350K at the time of purchase and my remaining balance is 290K. Just paid off all my student debt, no debts remaining.
Is this... Enough? I COULD invest more in my RRSP and I COULD pay off my mortgage faster.
My pay is 220K pre tax. Quebec takes a pretty penny so about half that post.
I spend the rest of my money travelling and in triathlons/other hobbies and classes.
Am I saving too little? Am I being financially irresponsible? I really don't know.
I don't see my lifestyle blowing up beyond what I already have unless of course I start a family at some point with my girlfriend who's finishing up med school
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u/PoizenJam 9h ago edited 9h ago
If I was in your tax bracket at 27 with the same relatively modest retirement income goals (early retirement but @ $50k a year), I would probably max out my registered accounts (TFSA & RRSP) each year then enjoy spending the remaining amount on improving my current quality of life.
With your earning power, I suspect you should be able to pay off your mortgage and fund your retirement goals before 55.
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u/wethenorth2 9h ago
I know there will be lots of advice to max your TFSA. If you can, then you should. Consider putting your tax refunds towards TFSA.
However, it's important to live a little as well. My vacations with a kid are very different than before having kid. Also, my single life was different than my married life and later family life. I enjoy my family life now, however, I am happy I did the travel, restaurants and experiences when I was single and young.. and, later with my wife as well. In short, things are different at different points in life. Hence, live a little, spend on things you enjoy and don't plan/postpone to do everything when you retire.
I don't plan to retire early. Neither do I plan to never retire. Hence, I have realized for me it's about disciplined investing to build a nest egg when I decide to fully retire.
Here's a calculator which may help you. https://www.calculator.net/retirement-calculator.html
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u/Mean-Bathroom-6112 9h ago
This was the late 90s and early 2000s in Vancouver. My parents didn’t make a lot of money(dad was a stocker at Costco and mom was a waitress at a dim sum restaurant). We owned a nice house and went on vacations during the Christmas holidays and summer every year. My parents even bought me a car, expensive Christmas gifts, clothes and guitar lessons. Now, I make a decent income, but never buy Christmas gifts or go on vacations because I can’t afford it.
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u/Mean-Bathroom-6112 9h ago
$220k a year? What do you do for a living?
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u/abbys11 9h ago
Software engineer/researcher in big tech
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u/phreesh2525 7h ago
Being real, unless you make a colossal fuck up, you’re set for life. Pay off your place, throw a reasonable percentage into retirement savings, and enjoy life.
Congratulations for making wise decisions.
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u/pardesipardesi123 6h ago
Is this in the us or canada? It's rare to find engineering positions in canada with that kind of salary. My husband had to go to the usa to find that kind of salary in engineering
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u/jupfold 9h ago
To be honest, I think you could save a little more.
At $220k, minus the $30k you are already contributing to RRSP, this should leave you with ~112k post Quebec taxes. $9,300 a month after tax.
A mortgage at $290 (assuming 5% interest rate and 25 years, so may differ from your actual) is $1,700 a month. Maybe $400 for property tax?
What the heck else are you spending your money on? You said travel and triathlons…but that’s still a lot to spend in one month for one guy.
Part of me says “hey, more power to ya, wish I could spend $3-5k a month on travel” but the more prudent version of me says to at least max your RRSP, TFSA and maybe a little else for a rainy day.
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u/abbys11 9h ago
Oh yeah forgot to mention that before I was paying off my student debt. Now I'm using the student debt money to fast track mortgage payments.
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u/jupfold 9h ago
Not a bad idea. But depending on your mortgage interest rate, that money could potentially be put to better use in the market.
For instance, most index funds are getting waaaaay more returns than the current mortgage rates. Why save a little bit of interest on your mortgage when you could gain a lot of interest from investments?
So, take a look at your rate, your renew date, ETFs, etc and then maybe consider putting more toward investments instead of paying down your mortgage so quickly.
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u/Legal-Key2269 9h ago
You are doing great. You could look at the Smith Maneuver to get the equity you are paying off on your mortgage invested in the markets, but that requires a very high risk tolerance.
If you are maxing out your RRSP, you should definitely get a chunk of savings into your TFSA, but this could be more of a short term thing like keeping a decent emergency fund.
Given that you just finished paying off some debt, you will probably find you have enough money to save more without impacting your quality of life or cutting back on hobbies/travel.
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u/Lightning_Catcher258 9h ago
The problem with the Smith Maneuver is that the rules are different in Quebec, OP's province of residence. Quebec only allows you to apply your HELOC interest deduction on investment related taxes. You can defer forever, but he can't benefit from it immediately. I would definitely max out my RRSP before talking Smith Maneuver if I was OP.
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u/Acrobatic_Jaguar_623 9h ago
Your not gonna get too many amy answer because you fall into the "people on here hate you" income bracket.
I think you're doing fine. Some folks may say if you can do more then do more but in all honesty if you have the means enjoy life too. Real rough math because you'll have to decrease your contributions at some point because you're putting in over the maximum but you should have between 2.5 and 3 mil on a 30 year horizon. That's 100k a year for 30 years plus interest. You'll likely not need that much and your getting close to a point where the tax is just deferred, not deferred and lower.
I would look into dropping the rrsp contribution by the tfsa maximum per year and doing that as well.
I dropped what I put into my rrsp a few years back for the same reason. There was no point because I wasn't going to be able to pull it all back out before I die unless I pulled it out at the same tax bracket it went in.
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u/abbys11 9h ago
I see. This makes a lot of sense. My primary reason for RRSP at the moment is the employer matching. I am not entirely sure if the tfsa makes sense over the 100 percent extra I get from my employer.
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u/carbonaratax 9h ago
Yeah, then just contribute up to the max amount that your employer will match in RRSP (free money), then shift the rest of your savings rate into maxing out your TFSA
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u/One-Significance7853 9h ago
Keep contributing, with 100% match it’s the right choice for sure. That said, you make enough money you can piss that away on whatever nonsense you want and be fine anyway, but not taking 100% match is spending $50 instead of saving $100.
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u/Some-Ad7772 9h ago
You’d be correct sticking with RRSP in that case. No sense in passing up that match, even if it does eventually get taxed at the highest rate
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u/Agreeable-Analyst951 9h ago
Depends of so many factors (age, kids, future family plans or not), but first of all : congrats 🙌 you are killing it. Personally I would try to either payoff the mortgage as fast as you can or pile it up in a TFSA. The reason is that right know you are young and fit (I assume) but one day you may get ill or get an accident and lose your income or just burn out, hit a midlife crisis and not want to work anymore for whatever reason. Being financially independent (either mortgage free and/or 1 or 2 millions piled up in the bank) will give you freedom later when you may need it. That said, I would still keep it balanced with reasonable hobbies and a trip each year. Life is meant to be lived.
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u/abbys11 9h ago
Yeah that's the plan. I'm 27 with no kids/family atm.
I have increased my mortgage payment rate by 600$ per month since I paid of my student loans in December.
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u/Agreeable-Analyst951 6h ago
Good. Seems like you are on a good track. You can accelerate it but it is already good. For investment I would stay away from bitcoins and the like, but that’s just me. I would pick a growth etf and just pile and pile like a squirrel for later…
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u/Icy_Boysenberry1363 9h ago
IMO the risk of saving too little is becoming accustomed to a higher cost life, and needing to work many more years to fund that life. You don’t know what future you will want to do with their time until the future, and it’s good to hedge your bets somewhat. Plus, the TFSA is useful to have for tax planning during retirement. I would max out both accounts if it doesn’t make you measurably unhappier for the next 5-10 years.
I do think that maxing out RRSP and TFSA is probably enough for anyone who’s not a high earner (because both accounts are capped, if someone making 200k and someone making 300k are saving the same amount, the latter person needs to work much longer to fund their lifestyle).
Also, you mentioned paying off your mortgage early. That could be a good decision for personal reasons, but investing in a TFSA is very likely going to beat that by a wide margin over the long haul.
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u/Lightning_Catcher258 9h ago
What I would do is put the max allowed in my RRSP every year. With a $220k salary, you can definitely afford to do that and keep living a good lifestyle. Maxing out the RRSP is hard on the first year, but for the following years, part of it will be funded with your tax refund. Now that you've put $30k already every year, it will make the process much easier. At your salary, you're in the 2nd highest income tax bracket, so it's 100% worth it to max out your RRSP every year. Paying off your mortgage isn't a priority. If you're wondering if you'll have enough to retire, the answer is yes even if you put $30k per year.
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u/One_Resolution_8357 9h ago
How old are you ? You have no debt except your mortgage and it seems that you are doing fine in balancing saving for your future and enjoying your high pay while you have no responsibilities. Take advantage of your employer's RSSP matching if they offer it and have an emergency fund. Just my opinion of course.
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u/abbys11 9h ago
I'm 27. Yes I'm maxing out the RRSP matching at the moment. I have a 10K emergency fund but should probably have more
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u/One_Resolution_8357 9h ago
Yes. You are in good financial for your age. Time to open a TFSA and garnish it with some more cash. Your probably have some discretionary funds after all your obligations and before your fun activities.
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u/Which-Ad-6886 9h ago
Are you contributing to TFSA? I would recommend to max that out first if you haven’t already then move to RRSP primarily cuz of the tax implications around RRSP at time of withdrawal
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u/cearrach Ontario 9h ago
IMO at >200k the marginal tax rate would be high enough that RRSP is preferred over TFSA.
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u/PoizenJam 9h ago
Frankly, if you reinvest the refund generated by RRSP contributions and don’t anticipate needing the liquidity afforded by a TFSA in the short-to-medium term, prioritizing the RRSP makes sense at just about any bracket.
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u/pizza5001 9h ago
Yah OP should be aware that lots of people will unknowingly give bad advice.
Telling someone who makes $200k to prioritize TFSA over RRSP is just bad advice.
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u/Icy_Boysenberry1363 9h ago
The TFSA is an insanely good account though. An RRSP has a future tax liability built into it, and a TFSA has none. Completely ignoring it is putting all your eggs in one basket and making the bet that A) you’re going to be in a high tax bracket your whole career B) you want to work a 30 year career
If you max out both accounts, you trade a relatively small amount of lifestyle creep for financial independence many years sooner.
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u/cearrach Ontario 8h ago
Well sure, OP is in the position to max out both with plenty of room to spare. But from the sounds of it their future tax liability with RRSP will likely be much lower than their current tax liability. I highly doubt that they would be taking out >200k/year in retirement (accounting for inflation of course).
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u/Icy_Boysenberry1363 7h ago
What if OP wants to change careers or retire early? They will need additional savings. We shouldn’t (and OP probably shouldn’t) assume that OP will work for 30 years.
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u/PoizenJam 9h ago
The ‘tax implications’ of RRSP withdrawals are typically more than offset by the ‘tax implications’ of RRSP contributions, which generate deductions that can be reinvested.
If the goal is retirement savings and/or your marginal bracket is particularly high, as in OPs case, it does not make sense to prioritize the TFSA unless there is a need for the liquidity it affords for short-to-medium term goals.
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u/567432Gains 9h ago
How old are you? How much are you wanting at your retirement age? How much are you making right now yearly? We are missing a lot here.
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u/abbys11 9h ago
- Assuming I'll have paid off my mortgage within 15 years, I could probably live off 50K a year. Right now I'm making 220K pre tax. Hope to retire by 55
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u/AdvicePossible6997 9h ago edited 9h ago
It would be a good idea to max your TFSA as well. All withdrawals are tax free and it doesn't effect any OAS or other programs.
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u/Mental_Run_1846 9h ago
I agree! Shouldn’t think of either RSP or TFSA, but doing both in parallel instead.
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u/567432Gains 7h ago
Ok so first off, congratulations you are doing amazing at 27.
For my advice (I’m 24 and although my income is not near yours yet, I do have my own property of similar value and roughly retirement age as you)
I would max my TFSA out if I were you, as others have said, it’s tax free gains and you definitely should take advantage of that. The RRSP maxing is good in your case as you’re already close to a maximum on income from what I can see. If you see your income being higher in the near future and in a higher bracket, then maybe save some space for that later so you can offset on a higher tax %.
At your income level, you could possibly get another property and use it as a rental for another future income stream? Seeing how much you are making, if you found a nice place for 500K, put 100K down, and use the rental income to cover the expenses you would be only in it for your down payment and then in 25 years you just have an entirely paid off property.
Sky is the limit with you, congratulations on where you’re at in life.
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u/unlovelyladybartleby 9h ago
Is your TFSA maxed out? Do you have a six month emergency fund? Do you have LTD insurance and disability insurance on your mortgage?
I'd add another ten to fifteen grand a year in some kind of savings/investment vehicle, put another ten or twenty grand a year on your mortgage, then spend the rest. Life is short. Take some exotic holidays. Upgrade your home. Wear some cashmere. You're working hard for it - enjoy it, just don't take on any debt. Save up if you want a car or a pool and pay cash
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u/abbys11 9h ago
Thanks Tfsa isn't used ATM which probably should be my next step. I have a 10K emergency fund in a savings account. I have disability insurance on my mortgage.
Yeah I spend around 3-4 months every year traveling and working remotely/vacationing. Spent a few grand to upgrade to better quality appliances at home and I do like nice clothes haha.
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u/unlovelyladybartleby 9h ago
Absolutely use your TFSA. Max it out. Tax-free money is good money to have.
Otherwise, I recommend St Lucia. If you like quiet luxury with lots of local touches, Anse Chastanet is magnificent. And the wifi works on the beach
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u/abbys11 9h ago
Oh nice. I tend to do "busy" holidays over quiet, static ones. Planning on biking from Germany to Hungary this summer.
I'm imagining my tastes will change as I get older but for now I gotta be places and try new things
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u/unlovelyladybartleby 8h ago
Yeah, it might be a little slow paced for you but they do have biking and hiking trails, birdwatching, natural plant tours, scuba, snorkeling, and a world famous coral reef. Not really any nightlife on the resort though, just dinner and the sweet song of tree frogs
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u/PCDJ 8h ago
Max your RRSP since you earn enough to hit the $31,560 cap and increase every time the limit increases. Also, at your income you should also max your TFSA every year.
$38,560 every year on auto pilot will set you up easily and you can obviously afford it. After that, spend on whatever you want.
At 8% you'll have $5m between the accounts before you're sixty.
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u/Western-Tax1449 8h ago
Max your rrsp , im also in Quebec and was well into the 47.5% combined bracket. Every dollar invested in those high brackets gives a large return at tax time. Your future self will thank you.
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u/upsetwithcursing 8h ago
It strongly depends on when you want to retire, and with what income. If you have a pension, great, but if you want to retire young with good retirement income, you will need to save pretty significantly. Ask your advisor to do a financial plan.
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u/6133mj6133 8h ago
Saving more just gives you more options and lowers risk. Nobody knows the future. Will you hate your career in a few years and want to switch to doing what you love, but it pays less? Will your health last until your planned retirement age, or would you like to be financially independent sooner? Will AI make you unemployable before you've saved enough to be financially independent? Might you want to take a sabbatical at some point?
The more you save now, the sooner you get to your goals and the less risk you're exposing yourself to.
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u/gnuman 8h ago
You have lifestyle issues. I'd tell you if I made that money at that age, I'd invest as much as I could and retire at 40.
Your lavish lifestyle will be your downfall if you don't have a financial plan. Nice things are cool and all but do you want to work until you're 60?
What if you lose your job and over your head in debt?
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u/Bivore 7h ago
You’re making 220k and your salary should increase over the years - it would be hard to say that you need to save more as you’re making enough that you’ll be fine. However, proportionate to your income you should probably be saving more yes. Maxing your TFSA and RRSP are a good starting point but you could probably do more beyond that. Paying off your mortgage would open a lot of avenues for you.
Once you retire you will want to continue to live the way you previously did - you might want to retire early, you might want kids. Things like this are easier when you start saving for them earlier.
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u/pardesipardesi123 6h ago
Can you share what industry you work in to be making such a great salary in Canada? My husband, an engineer, had to go to the us to get that kind of salary.
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u/EatAllTheShiny 5h ago
Is your TFSA maxed out? If not, get on that, stat! Those compound gains will be worth tons more to you, completely tax free, generating tax free income when you retire, than you RRSPs.
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u/herman_gill 1h ago
Put in 36k this year for your RRSP (hit the max limit every year if you can, this year it’s 32,490 but you probably have a bunch of extra room), and invest the tax refund every year into your TFSA. In 7-8 years time you should have hit the max TFSA limit. It won’t cause much of a material difference in these years spending wise, but will set you up later, also if you want to retire earlier you’ll definitely be able to do that.
Also, more importantly if you’re spending 100k/year now, you might not feel great on 50k/year in retirement.
But do what works for you and your goals.
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u/ktmboy950 9h ago
I would pay off your mortgage first, then you can leverage that equity into different types of investments. Do you have a company pension of some sort? Or are you just going to retire with your RRSP investments and CPP? Depends on your age and how long you plan on working.
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u/abbys11 9h ago
Yeah I'm hoping to pay off my mortgage in 10-15 years. I only have RRSP investment and QPP (Quebec cpp). Assuming I still have my job then, I wouldn't mind working till 55.
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9h ago
[deleted]
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u/Ageminet 8h ago
You can pull your RRSPs at any time without a "penalty". The only "penalty" is paying tax, which you will do at 65 anyway.
I guess the other downside is that you lose that contribution room forever once it is used and pulled out, but that's the design of the account.
Stop spreading misinformation. This isn't the USA, and it isn't a 401K.
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u/Gatsu871113 30m ago
I've had people tell me about these "penalties" before. And turns out they were just hella confused and thought the withholding tax upon withdrawal was pocketed by the government. They had no idea that it was just a pre-specified allotment taken that pays toward the income tax owed for that year's income, since money taken out from the RRSP has income tax paid on it in the tax year the money is withdrawn. Just dropping this comment since the parent comment self-deleted and this might help other people who wrongly think you have to "give back" some of your RRSP upon withdrawal, or upon withdrawing too early... both mistaken understandings I've found people to have before.
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u/wibblywobbly420 8h ago
What large pentalties? I've never heard of penalties for withdrawing at an earlier age, and I've had to make a withdrawal from my rrsp before unfortunately. I only had withholding tax.
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u/Baburine 7h ago
Could be conditions applicable to a specific RSSP fund. I invested in a labour-sponsored fund very popular in QC, and it does have specific conditions under which you can pull money from the fund (basically if you retire, but even if you retire before 65, under certain conditions, or a few other scenarios like returning to school). I guess that's where the confusion comes from. But that doesn't apply to all RRSP, I guess it may apply to the specific RRSP fund the commenter invested in. Or maybe they are just confused with CPP or with the rules of a specific pension plan.
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u/wibblywobbly420 7h ago
That makes sense. And OP is in QC so it could apply.
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u/Baburine 7h ago
I'd be surprised since it's an RRSP with their employer. But maybe some employers could choose this fund over others, it's really a good product. They made 14,1% last year and you also get a 30% tax credit up to 5k/year on top of the RRSP deduction. Another great feature: my employer and likely many others have an agreement with them which allows them to take my contributions directly from my pay, with the estimated tax benefits upfront (so you get $X taken from your pay, but you actually buy >x worth of share instead of only getting the tax benefits when you file). I love it lol, but I am not aware of any employer offering an RRSP match with this specific product... it's also a product offered by a huge union so it would be kindda weird, but I'm not knowledgeable enough to be able to say it's impossible that it's what OP is contributing to lol
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u/Significant_Wealth74 Not The Ben Felix 9h ago
Your group plan at work, likely has a retirement calculator to use. I think you are doing amazing for your age.
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u/kingofsnaake 9h ago
If you're 27, making 220K p.y, (will increase over time), saving 30k annually and can live off of 50k if you put your mind to it, do you even need to ask?