Posted by Tim Stobbs on February 10, 2009
So welcome to day two of this math crazy set of posts. Today we are looking at my savings plan for age restricted accounts, RRSP and TFSA. I’m assuming a few key points here. First my rate of return will be on average 6.5% (I’m picking a lower number because I’m expecting lower returns for a while) with a deduction of 1.5% for inflation (which should be fine for my lifestyle). So real return will be 5% compounded monthly. This might not be correct over the short haul, but I’m using the same number for all the calculations to even things out.
Also I’m basing all my values on my end of year net worth in 2008 to do this in years rather than months (with a few minor adjustments to account for recent fund transfers). I’ll be using this calculator again.
One final assumption. I’m assuming that all my pay raises for the next 14 years are only inflation matched. So anything beyond that amount I can spend as I want and not change these numbers.
So in order to track a few different pools of money I’m going to have to run a few different accounts all at once.
First off there is the age restricted money which includes my pension (can’t use it until I’m 50) and my LIRA (I can’t use that one until I’m 55). To simplify things a little bit I’m rolling these into one pool. I won’t be adding to the LIRA so over the long haul it won’t matter much compared to my pension plan.
Starting at $8800 (LIRA) + $850 (Pension) = $9650
Adding $1039/month at 5%
In 14 years I will have:$271,464
Now I can’t use this for another five years so I’m going to just assume no new cash and let it grow for another five years. So by then it will be worth: $348,385 by the time I’m 50.
Again I’m going to merge my wife’s RRSP and mine to create a single pool. Yes to do this right I should keep them seperate but that’s a bit too much effort at this point. Also note the amount added to these accounts looks small because my pension is eating up so much of my RRSP contribution room each year.
Starting at $18800 (Tim’s) + $8800(Wife’s) = $27,600
Adding $200/month at 5%
In 14 years I will have:$104,018
Now here is where timing is a little more critical. I’m going to be maxing these out until for four years, then I’m going to stop for a few years while I pay off the mortgage. Then I’ll come back to these and max them out again. Again I’m merging accounts to keep things simple.
Starting at $0
Adding $833/month at 5%
In 4 years I will have:$44,161
Then for three years I won’t be adding anything (when I’m killing off the mortgage), then it will grow to:$51,291. Then for the last few years I max it out again.
Starting at $51, 291
Adding $833/month at 5%
In year 14 (I’m 45) I will have:$156,306
Ok, so I’m up to $531,000+ by the time I turn 45, that’s a nice looking number. I should note that I haven’t done anything with the taxable accounts yet. I’ll get to that tomorrow and discuss some other issues like paying off the mortgage.