Posted by Tim Stobbs on September 2, 2011
Today we are looking at the accumulation of money in my age restricted accounts (pension, LIRA) as well as RRSP and TFSA. I’m assuming a few key points here throughout this series.
First my rate of return will be on average 6.5% (by the way this actually tracks fairly well with my RRSP performance since 2003) with a deduction of 1.5% for inflation (which should be fine for my lifestyle, but is slight below average CPI). So real return will be 5% compounded monthly and all calculations will be in today dollars.
Also I’m basing all my values of my net worth in Aug 2011 so to keep things simple I will assume my years run from Aug to July. I’ll be using this calculator again.
I’m also assuming that all my pay raises for the next 9 years are only inflation matched. So basically when working in today’s dollars I’m assuming I just never get a raise. This gives me a little buffer in case my estimated rate of return turns out to be too high. I’m also assuming I don’t get back on the school board after Oct 2012 when my term ends, but I will return to full time work at that time (I don’t know about you, but I would never bet on an election result).
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 of money. 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 $10,60 (LIRA) + $35,200 (Pension) = $45,800
Adding $1145/month at 5%
In 9 years (when I’m 42) I will have:$227,531
Now I can’t use this for another eight years so I’m going to just assume no new cash and let it grow for another eight years. So by then it will be worth: $339,154 by the time I’m 50.
Again I’m going to merge my wife’s RRSP and mine to create a single pool of money. Yes to do this right I should keep them separate but that’s a bit too much effort at this point. Also note I’m adding in an extra lump sum to simulate my usual top up of my wife’s RRSP that I do since I’ve been on the school board. Since that won’t continue past 2012 in these calculations it will treated as a one shot deal
Starting at $26,100 (Tim’s) + $18,500(Wife’s) +$6,600 (lump sum) = $51,200
Adding $200/month at 5%
In 9 years I will have:$107,431
In this case I won’t be adding anything else to the TFSA for the next year while we finish paying off our mortgage. Note the pay off of the mortgage doesn’t completely line up with with my Aug to July years in this series so I will accept in this case the value will be off a bit.
Starting at $24,300
Adding $0/month at 5%
In one year I will have:$25,543
Then we start to max out the TFSA contribution room ($10,000/year for two)
Starting at $25,543
Adding $833/month at 5%
In year 8 ( when I’m 42) I will have:$136,151
Ok, so I’m up to over $471,000 by the time I turn 42, 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.