A Young Saver’s Gift From Our Government
There is no doubt that young adults have it tough today. I am often thankful that I am gearing down my career unlike my own kids who are just beginning their own work life. I feel privileged to help people, especially younger adults, make the best decisions they can with their money.
Indeed, many things are more difficult today like higher unemployment, expensive education and a lacklustre economy. At the same time, opportunities exist for those that watch, learn, listen and seize the moment.
One such opportunity is the TFSA (tax-free savings account). I wish I had access to this savings vehicle when I was just starting my own career! Back in the 80’s, the right way to save money, especially for the long term, was within an RRSP (registered retirement savings plan). But now you have both- and the potential to make better savings decisions with your limited dollars.
If you save diligently throughout your career in an RRSP and your investments do reasonably well, you may find yourself with a large balance upon retirement. While this sounds incredibly attractive, you could also end up paying more tax at a higher rate than during your working life. You will keep even less money in your hands if your senior’s benefits like OAS (old age security) are clawed back.
Young savers today have the opportunity to plan and keep more money in their pockets over their lifetime by making use of both the TFSA & RRSP. Early in your career, when your income and tax rate are low, it is smarter to contribute to your TFSA. Mid or later career, once your income or tax rate is higher, you will build more wealth by contributing to an RRSP. Upon retirement, if you have healthy amounts in both accounts, you may be able to plan your withdrawals to minimize tax even further. I’m hoping my own kids are listening to this advice too?!
Who knows what new tools our cash-strapped governments will introduce next. If they remain seriously concerned about the level of retirement savings, maybe more good things will come? Until then, make the most of what you have now and watch your savings grow!