Author: Financial Awakening Blog
Most people have a hard time planning for even tomorrow, let alone 10+ years later, especially in North America.
No problem will automatically disappear. If you do not realize your problem now, it will amplify 100 times 10+ years later. If you want to be worry free when you retire, you better act now.
For those who invested in RRSP, they are considered to be superior in planning for the future than most population in North America. That is a start. However, it is not enough. If you calculate how much you need when you retire to maintain your current lifestyle, it is not difficult to find out why RRSP is not enough. Let’s say you retire at the age of 65, and let’s say you die at the age of 100. You have 35 years to live before you die without income. Let’s say you spent $3500 per month now inclusive, and the inflation is 2.1%. You will need $2,139,339 for retirement assuming that you will die at or before the age of 100. What if you are so “unlucky” that you live pass 100?
From here, we can see that instead of having a limited pool of money to spent and scaring that you will live pass the age of 100, why not create some passive income that can generate constant amount of income which will increase with inflation per month? You will no longer worry about when you die because the money will keep coming in and you even have some great asset pass onto your next generations. Isn’t that great?
If you are considering using this approach, you will still have high income when you retire which make RRSP a really unattractive investment vehicle become you will need to pay more tax when you withdraw the money and you lose the benefit of reduction in tax in capital gain. On the contrary, TFSA is made for this matter. You can take out as much money as you wish AT ONCE and no need to worry about paying tax. Best of all, you can put the same amount back into the fund next year when you can. Isn’t that great? I can buy a stock at $0.5 per share and sell at $5 per share without paying tax! You are richer than you think. Some said $5000 per year in TFSA is nothing. Think again! If you are good, $5000 can turn into $10000 next year without tax! Very soon, you won’t be putting in $5000 per year because $5000 is nothing compare to what you already have in the funds! I think you should take on the highest risk investment possible in TFSA and make the most out of it. RRSP is designed for those who plan to lose. No offence, but if you invest in RRSP, it means you believe you will make less when you retire, instead more. You just declaired yourself to be a loser.
It is never too late to start planning. It is true that the earlier you start planning, the more time you have to steer your direction, and hence the higher chance of achieving the goal of financial independent. However, late is always better than none. Do it now!
If you decided that you want to achieve financial independent by the time you retire, this is a blog that you should read. I will help you realize what is ahead of you and give you a step by step guide of what to do next.
Now, sit back and think about what is it that you want for your future.
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