Posted by Tim Stobbs on November 27, 2012
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 7.0% (by the way this actually tracks fairly well with my RRSP performance since 2003 and my pension results since 2009) with a deduction of 2% for inflation. So real return will be 5% compounded monthly and all calculations will be in today dollars (2012).
Also I’m basing all my values of my net worth in Oct 2012 so to keep things simple I will assume my years run from Oct to Nov. I’ll be using this calculator again.
I’m also assuming that all my pay raises for the next 8 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. Given the years I’ve been doing these calculations I’ve often got raises beyond inflation which I turn over into savings so at worst case it brings my retirement goal closer.
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. (Oh of interesting note I learned I can actually move about a 1/3 of my pension out of age restricted into a regular RRSP when I retire, which just gives me some nice flexibility if I want.)
Starting at $11,700 (LIRA) + $53,800 (Pension) = $65,500
Adding $1167/month at 5%
In 8 years (when I’m 42) I will have:$235,036
Now I can’t use this until I’m about 50 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: $350,341 at age 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 my since the house is now paid off I’m going to be increasing our payments to max out my extra RRSP contribution room.
Starting at $30,300 (Tim’s) + $29,600(Wife’s) = $59,900
Adding $333/month at 5%
In 8 years I will have:$128,493
In this case, our contributions to our TFSA accounts has been zero for the last year, I was focused on paying off the mortgage, but going forward we will be maxing our contribution room (or $10,000/year for both of us). I just saw the change to $5,500 per person starting in 2013, but I’m going to ignore that for now as I’m already done most of these calculations. *sigh* Also the effect is fairly minor.
Starting at $28,200
Adding $833/month at 5%
In 8 years I will have:$140,112
Ok, so I’m up to $503,641 in total 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.