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TFSA vs. RRSP: How are Canadians saving?

Written by Sheryl Smolkin

Wednesday, December 16th, 2015

Tax-Free Savings Accounts, Registered Retirement Savings Plans and unregistered savings accounts – Canadians have a variety of ways to save for retirement. Depending on their age and stage in life, they may choose to allocate their savings in different ways.

To better understand how individuals in different age groups are saving, I asked three people what their retirement savings plans were in 2015, as well as their longer term goals for funding life after work. Here's what they told me.

Krystal Yee - Generation X

As a marketing manager by day and a blogger at Give me back my five bucks by night, Krystal Yee is no stranger to saving money. After Yee graduated from college in 2006, she paid off $20,000 in credit card debt and student loans in one year, and by April 2011 she had saved the down payment for a house in suburban Vancouver.

Recently, Yee decided to sell her house, move to the city with her boyfriend and go back to renting. “I can save a lot of money renting and sharing expenses. It's much more flexible," she says. "We may rent for a year or so and then buy a house together, or continue renting and invest the balance of our savings."

Yee had about $35,000 in combined TFSA/RRSP savings room in 2015, and she contributed $350 to her RRSP (called RSP at Tangerine) and $150 to her TFSA on a biweekly basis. “When I owned my own house, I saved about 25% of my earnings. Beginning in 2016, I'll be able to save 65% of my income," she says.

Her goal is to retire at age 55, and she says her savings are right on target to do so.

Tom Drake - Generation Y

Tom Drake lives in Edmonton and is employed as a financial analyst for a major grocery chain. He is also the author of the Canadian Finance Blog and his company Drake Media manages a portfolio of other blogging sites. With a stay-at-home wife and two sons aged six and three, Drake is currently focused more on meeting day-to-day expenses than saving for retirement.

In total, Drake and his wife had $60,000 in RRSP room and $45,000 in TFSA room in 2015. He deposited about $13,000 ($500 bi-weekly) in his RRSP and contributed to his defined contribution plan at work.

“I have to make some contributions to my RRSP to pay back the amount I withdrew to buy my house," he says, “But otherwise, I usually try to put in just enough to keep me out of the highest tax bracket." As for their TFSAs, the Drakes use his wife's account to accumulate the cash they need to pay for major annual expenses like property taxes and life insurance premiums.

“We also have some unregistered savings, but once the kids are in school full-time and my wife goes back to work, we will really be able to concentrate on paying down the mortgage and topping up our retirement savings," he says.

Bonnie Flatt - Baby boomer

Six years ago, lawyer Bonnie Flatt gave up her lucrative career as an executive compensation consultant and embarked on a new journey, retraining as an executive and leadership coach. She and her husband live in Toronto and have two university-aged children.

She says her late career change resulted in a "big-time" change in her approach to retirement savings. “Before I would max out everything from a savings perspective and still pay down my mortgage because I had the necessary cash flow."

Flatt says she hasn't contributed to her RRSP in six years. “By the time I changed careers, I had enough money saved in my RRSP anyway. Therefore, I put any free cash into a TFSA or an after-tax account so when I retire I won't get hit with a lot of taxes."

Flatt loves her encore career and although she can probably afford to retire at age 65, she says she sees herself working as long as her "health and brain power" allow her to. "And when my kids are both independent, I plan to travel more and see the world," she says.

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