Building a $1,000,000 RRSP Starting in your 30’s, 40’s, and 50’s.

When I initially wrote this article about building RRSP wealth in your 30s, 40s, and 50s, my goal was to create an easy visual that illustrates just how much you would have to begin saving today if you wanted to be a millionaire “tomorrow” (when you retired).

Five years later, the data stands up pretty well. I’m happy to say that my personal RRSP is well on the way to million-dollar status!

Now, the more relevant question might be, do you actually need a million dollar RRSP to retire? We attempted to answer that question in as much detail as possible with our free eBook: Can I Retire Yet? – which you can download by entering your email below.

Get Your Free eBook &

Start Your Own Journey

 

Including an indepth guide on how to build a diversified portfolio with ETFs.

Our Exclusive 'Can I Retire Yet' eBook

Free

Get Your Free eBook

Looking back my calculations were probably a bit too conservative, but given how stretched valuations now are in the US, they probably make sense going forward. Those assumptions include a 4% return after inflation – so we’re talking “real” millionaire status here, not “nominal”.  

Keep in mind that these returns are calculated before fees and taxes. That’s an important qualifier, as choosing to follow traditional Canadian mutual fund investments strategies is going to mean you actually need way more than the totals below because of how much money you’re going to pay in fees.

Instead, I recommend checking out my articles on the best online brokers in Canada, best dividend stocks in Canada, and best ETFs in Canada in order to cut fees to the bone, and to maximize your RRSP nest egg.

Read on to find out just how much you need to save today in order to build a million dollar RRSP in the future!

RRSPs Get a Bad Name

’ve found that in our quest to simplify how we prioritize with different investing accounts, the old standby Registered Retirement Savings Plan (RRSP) has gotten a bad name. In fact, I see lots of misinformation on social media posts these days referring to it as a “rip off” or “scam”.  

Ok, I’m going to do my best here to refute this point in a succinct way.

1) First and foremost, if you haven’t started investing yet, the MOST important thing – by far – is to just pick an account and get started. Don’t worry about optimizing and getting everything perfect – just get started. I’ve seen way too many Canadians endlessly read about investing and never actually get started.

2) RRSPs are definitely NOT a scam. It’s very simple math – they’re not a scam, and if you think they are you probably just don’t understand some aspect of the math.

3) If you make below 40K per year, maxing out your TFSA before your RRSP is almost assuredly the better bet.

4) If you make more than 120k or so, then the RRSP probably makes more sense before the TFSA – BUT at that income level, I’d challenge you to try to max out your RRSP and TFSA.

5) For the 40l-120k group (which the vast majority of us fall into) it has become very fashionable to say “just do TFSA first”. I’m not so sure that makes sense. Yes, you will pay tax on RRSP income when you take money out of the RRSP – but remember – you got a refund on the front end, which you should have reinvested right back into the RRSP.

6) People often overestimate what tax bracket they will be in once they retire. There are all kinds of income splitting opportunities for retirees, as well as tax breaks for seniors in Canada. That ultimately results in a substantially lower average tax rate for most couples when they retire than when they were working (which is presumably when you’ll be pulling RRSP cash out).

7) If you’ve read our simple strategies when it comes to withdrawing from your RRSP and TFSA in retirement, then you know that pulling out RRSP money to pay for life between 65 and 71 can allow you to defer your CPP and maybe OAS payments as well. That’s an excellent strategy for people looking to de-risk their retirement income plan (and one Kyle describes in-depth in his course). Many Canadians that follow this strategy are able to take out $200,000+ of their RRSP money at a tax rate of 0%.

8) A lot of people ignore the potential benefits of lowering your taxable income on the front end when saving for retirement. The most notable of these benefits is the Canadian Child Benefit. If you have multiple children, just the increase to the CCB alone is probably going to make it a much better deal for you (because you’ll have lowered your taxable income – thus increasing your CCB). But most people forget all about this when they have to pay a bit of tax on their RRSP withdrawals in retirement – and then complain about “The RRSP Rip Off”.

Starting at 30, Millionaire at 65

Assumptions:

• 30 years old
• 35 years left until retirement
• 4 % return (after inflation)
• 35% marginal tax rate
• Increase savings/year with inflation (assume 2%)
• All RRSP contributions reinvested

Results:

I built a simple spreadsheet that models a steady return and reinvesting the tax refund generated by the RRSP contribution.  Based on the assumptions above, for a 30-year-old who wants to have a million dollar RRSP by age 65 would need to save $7,000 per year ($585/month), adjusting for inflation annually.  If the 30-year-old makes a higher income and in the 40% tax bracket, s/he will reach millionaire status a year earlier.

Starting at 40, Millionaire at 65

Assumptions:

• 40 years old
• 25 years left until retirement
• 4 % return (after inflation)
• 40% marginal tax rate
• Increase savings/year with inflation (assume 2%)
• All RRSP contributions reinvested

Results:

Based on the assumptions above, for a 40-year-old who wants to have a million dollar RRSP by age 65 would need to save $12,000 per year ($1,000/month), increasing with inflation annually.  

Starting at 50, Millionaire at 65

Assumptions:

• 50 years old
• 15 years left until retirement
• 4 % return (after inflation)
• 40% marginal tax rate
• Increase savings/year with inflation (assume 2%)
• All RRSP contributions reinvested

Results:

There is less time until retirement for a 50 year old which results in less compounding over time.  Never the less, strong earnings combined with high savings can still result in a wealthy retirement.  Based on the assumptions above, for a 50-year-old who wants to have a million dollar RRSP by age 65 would need to save $28,000 per year ($2,333/month), increasing with inflation annually.  

You may notice that $28k is above the RRSP contribution limits but can be mitigated in a couple of ways.  Chances are if you are starting your RRSP at 50, you have a ton of unused contribution space.  If that gets used up, and you have a spouse, consider the $28,000/year a team effort split between two RRSP accounts.  

How to Build a Million Dollar RRSP

Becoming an RRSP millionaire is not out of reach for middle-class income people who start young and are willing to live frugally. Alternatively, obviously the more you earn the less frugal you have to be in order to meet the following savings targets:

• Starting at 30, with conservative assumptions, saving $585/month (increasing with inflation annually) and reinvesting the RRSP tax refund will result in a $1 million portfolio in 35 years.
• Starting at 40, with conservative assumptions, saving $1,000/month (increasing with inflation annually) and reinvesting the RRSP tax refund will result in a $1 million portfolio in 25 years.
• Starting at 50, with conservative assumptions, saving $2,333/month (increasing with inflation annually) and reinvesting the RRSP tax refund will result in a $1 million portfolio in 15 years.

You can see the massive difference in per-month savings it takes to make up for not getting started on building your retirement until relatively late in the game. Of course, if you’re able to start in your 20s, that’s even better. Warren Buffett is reported to have bought his first stock at the age of 11, and regrets not starting sooner!

While we just talked about the levels of savings required to get a million dollar RRSP (based on conservative assumptions) we didn’t really get into the “how“.  Oftentimes, investors can be their worst enemy, buying high and selling low.

Check out my always updated guide to the Best ETFs in Canada, as well as my current pick for the best online brokerage in Canada for more information on how to build your million dollar RRSP.