Advertisement
Canada markets close in 5 hours 41 minutes
  • S&P/TSX

    21,500.16
    -138.94 (-0.64%)
     
  • S&P 500

    5,431.55
    -0.05 (-0.00%)
     
  • DOW

    38,491.73
    -97.43 (-0.25%)
     
  • CAD/USD

    0.7269
    -0.0015 (-0.20%)
     
  • CRUDE OIL

    79.16
    +0.71 (+0.91%)
     
  • Bitcoin CAD

    89,866.55
    -1,932.11 (-2.10%)
     
  • CMC Crypto 200

    1,356.78
    -31.38 (-2.26%)
     
  • GOLD FUTURES

    2,334.70
    -14.40 (-0.61%)
     
  • RUSSELL 2000

    2,000.32
    -5.84 (-0.29%)
     
  • 10-Yr Bond

    4.2870
    +0.0740 (+1.76%)
     
  • NASDAQ

    17,695.08
    +6.20 (+0.04%)
     
  • VOLATILITY

    13.18
    +0.52 (+4.10%)
     
  • FTSE

    8,127.35
    -19.51 (-0.24%)
     
  • NIKKEI 225

    38,102.44
    -712.12 (-1.83%)
     
  • CAD/EUR

    0.6781
    -0.0017 (-0.25%)
     

Here’s the Average RRSP Balance at Age 71 in Canada

Retirees sip their morning coffee outside.
Source: Getty Images

Written by Andrew Button at The Motley Fool Canada

Did you know that there’s a deadline for withdrawing funds from your Registered Retirement Savings Plan (RRSP)?

It’s true. No later than your 71st birthday, you must convert your RRSP to a Registered Retirement Income Fund (RRIF) and withdraw money. Mandatory withdrawals start at 5% at age 71 and increase from then on.

In a recent series of articles, I wrote about Canadians’ average RRSP balances at various ages. The gist of these articles was that most Canadians’ balances were rather low. That’s an alarming observation since RRSP funds are the second most common form of pension income after Canada Pension Plan (CPP) benefits. Since 71 is such an important milestone in every Canadian’s RRSP journey, I figured I’d continue my coverage of RRSP balances by exploring how much the average Canadian has saved for retirement at that age.

A little under $272,000 (most likely)

Although I wasn’t able to find a specific figure for 71-year old Canadians’ average RRSP balances, I did find a pretty credible estimate for the 65+ age cohort: $272,000. That comes from Statistics Canada, so it’s probably pretty reliable.

ADVERTISEMENT

Now, we can’t exactly infer the exact RRSP balance from someone at the age of 71 from that. However, we do know that most Canadians are retired by age 65, and start drawing down their RRSPs before it becomes mandatory.

Usually, when a person hits retirement age, their savings start to shrink. By age 71, most people have been retired for six years. So, I’d estimate that the average retirement savings among 71-year-old Canadians is somewhere in the $250,000 to $270,000 range.

The magic of RRSPs

It’s hard to overstate the magic of RRSPs when it comes to compounding wealth. They do become taxable upon withdrawal, but if you aren’t earning much income in retirement, the tax rate is pretty low. And, of course, you can compound your investments without interruption while you hold them in your RRSP.

In taxable accounts, compounding is interrupted by capital gains and dividend taxes incurred along the way. In an RRSP, this “interruption” doesn’t occur until you retire, so you can grow your investments much faster.

Let’s imagine you held a $100,000 position in Fortis (TSX:FTS) stock in a taxable account. Fortis is a good example to work with because it pays dividends and, like all stocks, has the potential for capital gains.

If you held Fortis stock in a taxable account, there would be no way to avoid the dividend taxes. The dividends come in four times a year and are taxed even if you have them set to re-invest automatically. $100,000 in Fortis shares would produce $4,400 per year in dividend income. That amount is “grossed up” to $6,072, and a 15% Federal tax credit plus a varying provincial tax credit are removed.

If you had a 50% marginal tax rate and lived in Nova Scotia, you’d ultimately pay a $1,609 tax; that is a $3,036 pre-credit amount minus $1,426.92 in Federal and Provincial credits. You’d also pay a 25% tax if you cashed out a 10% capital gain ($2,500), and that tax is set to increase later this year. The RRSP reduces all of these taxes to zero while your shares are still in the account, allowing you to grow and compound your FTS shares more than you could in a taxable account. So, there’s a lot of wisdom in RRSP investing.

The post Here’s the Average RRSP Balance at Age 71 in Canada appeared first on The Motley Fool Canada.

What Stocks Should You Add to Your Retirement Portfolio?

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now. The 10 stocks that made the cut could produce monster returns in the coming years, potentially setting you up for a more prosperous retirement.

Consider when "the eBay of Latin America," MercadoLibre, made this list on January 8, 2014 ... if you invested $1,000 at the time of our recommendation, you’d have $18,111.92.*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 27 percentage points since 2013*.

See the 10 stocks * Returns as of 5/22/24

More reading

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

2024