How to save without RRSPs
Do you have a strong sense of freedom? Does it make you anxious to sock away your life savings and not allow yourself access to it until retirement? The idea of regularly contributing to a retirement savings plan seems to be the consensus when it comes to ensuring you having enough in savings 30 years down the road, but there are actually quite a few other ways to save, without putting a penny in your RRSP.
If you’re lucky enough to be able to buy a starter home or condo in today’s crazy real estate market, it makes a ton of sense to live in it until you can remortgage it for a deposit on a new home. Then you rent your first starter condo out and live in the new one. When you’ve paid enough of the mortgage down to buy another place you do that again. If you can do that three of four times over your working years you could have a place to live and three rental apartments paying you a nice income. Over twenty-five years most of the mortgages will be paid off and you’ll have extra income to travel or drink on a beach.
Take Your 30’s Off
Another strategy is to work hard through your twenties and save as much as you can so you can relax in your thirties. Save up money, get a rental property, start a business that will allow you to travel during most of your 30s and take them off. Do everything that your heart desires. Live abroad, eat, pray and love all over the place and when you turn 40 go back to work again. I’d rather have no worries and have time when I can appreciate life than retire and then have my hip blow out. Milk life all through your thirties and get back on financial track for your forties. It’ll be a richer life in the long run.
Invest Outside of Your RRSP
When you look for mutual funds, ETFs, stocks, bonds, or other investments to go inside your RRSP you can actually buy them in a regular account outside of your RRSP too. You get taxed on the income year after year but if your stream of income is mainly from stock dividends it is actually tax-preferred, meaning that overall you end up paying less tax on it than a regular investment. It is possible to build a huge dividend paying stock portfolio over time and start collecting the income right away versus in retirement. The additional benefit is that you can access the money without a penalty (you have to pay tax on any money coming out of your RRSP).
Move to a cheaper country
My favourite strategy is to move to an awesome beach town in Spain, Argentina, Thailand or Mexico to retire in. Many small towns will let you live like a king for a few thousand dollars a month. If you can create a business or income portfolio that can pay you only a thousand dollars a month – you can retire now! Why wait until you are 65. If you taught English, gave tours or bartended you could actually make this happen.
Obviously you have to be able to take on a ton of risk with these ideas. 99 percent of investment advisors would tell you to invest in an RRSP so that you have a nice nest egg when you retire. There are added benefits like if you go bankrupt your RRSP will not be touched and you get to save on your taxes for every dollar that goes into your RRSP. But if you are more of a bohemian rebel, just remember that there are options to retire without an RRSP.
David Lester is the author of two finance books — I (Heart) Money, and From Middle Class to Millionaire.
Cover: Ben Ruby/Vice illustration