# Next step after TFSA?



## ML91 (Dec 5, 2015)

Hi,

Background: 25 years old making 54k annually now - getting an 11k raise next month!!! - maxed out my TSFA with no debt. *My goals are to save for retirement by 50 (which ill be able to due to my work pension plan by then as well) AND for a down payment on a house in the next 7-8 years.*

This past week I finally maxed out my TFSA limit cumulatively so I am very happy. With the help of this forum I've created a very diversified portfolio of Vanguard ETFs. My next step is to save about 8k for an engagement ring and after that just save as much as possible. Assuming my TFSA will stay maxed out, where should I invest the rest of my savings from my future paychecks? I was thinking of opening an RRSP (non TFSA) and making large contributions a few times per year. Also, I will be inheriting some money later this year, about 50-70k which I plan on investing completely as well. Any help would be appreciated.


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## DavidW (May 27, 2016)

You didn't mention buying a house in your planning. Not that you have to buy one right away, but if you can start 'saving' for the house outside the RRSP so you can preserve the TFSA when you are ready to buy that would be a big bonus. Just my opinion but I think the right time to buy a house is when you think your life has settled down enough you will be in one spot for 5 years, your engagement might have an effect on that decision.


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## none (Jan 15, 2013)

Buy a $2000 ring and spend the other $6000 on a better honeymoon.


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## OnlyMyOpinion (Sep 1, 2013)

You are doing great to have your TSFA max'd out!
You do mention buying a house in 7-8 years so saving for that may be a higher priority than an RRSP right now (or a least a split priority). I'm not a fan of borrowing from your RRSP to purchase but some may feel otherwise. 
I'd pick a target, like saving 15-20% of your income (plus TSFA contributions) and see how you do for the next year. A HISA would be fine for the short term. Then revisit and see how you are managing, see if a house remains a priority, etc. 
I agree with none that $8k seems like more than you need to spend on a ring - not really conducive to starting off a marriage with a goal of retirement at age 50. 
I would check on the terms of your work pension. If it is a DB plan, I'd be surprised if you could retire at age 50?
I think a short-term priority is ensuring that you and your spouse have the same goals and aspirations - your monthly spending & saving goals and your future plans re/ house, family, big-ticket spending, retirement, etc.

This is a very simple tool I like to play with for 'what-if' scenarios: http://finance.yahoo.com/calculator/retirement/ret02/


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## ML91 (Dec 5, 2015)

OnlyMyOpinion said:


> You are doing great to have your TSFA max'd out!
> You do mention buying a house in 7-8 years so saving for that may be a higher priority than an RRSP right now (or a least a split priority). I'm not a fan of borrowing from your RRSP to purchase but some may feel otherwise.
> I'd pick a target, like saving 15-20% of your income (plus TSFA contributions) and see how you do for the next year. A HISA would be fine for the short term. Then revisit and see how you are managing, see if a house remains a priority, etc.
> I agree with none that $8k seems like more than you need to spend on a ring - not really conducive to starting off a marriage with a goal of retirement at age 50.
> ...


Okay sounds great, so ill keep adding to my TFSA yearly and the left over put in a HISA and see where I am in 7-8 years. I agree the ring is a little pricey but that is the max I will spend, ill try and get something for 5k but I still won't be afraid for 8. And assuming I inherit a large sum, I'd like to invest it in something like 40/40/20 with VCN, VUN, and VIU. How should I do this as my TFSA is already maxed? 

My plan from work is a defined contribution plan, not sure if that is better than a defined benefits?


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## My Own Advisor (Sep 24, 2012)

A maxed out TFSA is great - well done!!

Keep maxing out this account for the next 25 years, and you will retire young.

Personally, I would keep your TFSA as an investing account, long-term, and use a HISA for your down payment. Save for the ring via a HISA. 

In summary, short-term expenses <5 years = HISA.
Long-term needs >5 years = 1) TFSA, then 2) RRSP, then 3) non-registered.

Further, max out your TFSA _*and RRSP*_ before you invest non-registered. This is how you should invest long-term "as much as possible" to be tax efficient.


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## kcowan (Jul 1, 2010)

ML91 said:


> My plan from work is a defined contribution plan, not sure if that is better than a defined benefits?


Is here any employer match on that plan? If so, then maximize their contribution.

How are you investing in your TFSA? You should probably be heavily into equities.

Does your marginal tax rate justify any RRSP contribution?


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## ML91 (Dec 5, 2015)

kcowan said:


> Is here any employer match on that plan? If so, then maximize their contribution.
> 
> How are you investing in your TFSA? You should probably be heavily into equities.
> 
> Does your marginal tax rate justify any RRSP contribution?


Yes they do, ive maxed it out! And my TFSA is:

VCN 40% 
VUN 40%
VIU 15%
VEE 5%

I don't like bonds thanks to Peter Lynch but am contemplating them or cash to add when my ETFs are down for rebalancing. In regards to your RRSP question, I don't believe so but I am not very familiar with how RRSPs work..


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## kcowan (Jul 1, 2010)

Well your DC plan will add to your asset mix. How is that invested?

The RRSP is just an opportunity to have your tax money to put to use until you pay the tax on withdrawal. In my case, I really appreciated that option, but nowadays I would top out my TFSA before using the RRSP. It is also useful for investments that are a nightmare for record keeping like REITs. You can ignore everything since it is tax-protected.


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## Eclectic12 (Oct 20, 2010)

ML91 said:


> ... My plan from work is a defined contribution plan, not sure if that is better than a defined benefits?


The DC plan is similar to the RRSP ... though it seems there is employer matching so there is a likely a net gain, even if the investments don't perform in a stellar fashion.

The advantage for the DC plan is that you control what it is invested in, the reduction of RRSP contribution room that using it generates is $1 for $1 (i.e. $1 each of employee and employer contributions generates a pension adjustment [PA] of $2 that reduces the RRSP contribution room earned).

The disadvantages are that the plan investment choices may be limited/have a high MER and when retires, there is more work (what to buy, when to re-adjust, when to sell), what's in the plan is all one has (ex. make bad decisions, one many end up with far too little assets in the plan to fund more than a bit of retirement).


The DB pension has mostly similar but opposite bits.

The advantages include that management of the money typically has a lower cost, is spread across more asset types (i.e. not everything in Money Market funds or 100% Canadian equity), there is no investment decisions to make or re-adjustments to do and the big one is that if there is a shortfall in the assets, the employer has to make up the difference. (Though if the employer goes bankrupt or the employer changes the benefits, it might not end up being the same as one thinks).

The disadvantages include that the PA is much larger than the $$ contributed so that the RRSP contribution room is more significantly reduced, most plans require many years of service to end up with a sizeable pension (where a lot of people change jobs, capping what it could pay), if the investment perform extremely well one is limited to what the pension formula says one will get and where funding is an issue, the benefits can be changed part way through the process.


Note that if the DB pension is a US pension, there is the additional disadvantage that company executives can "borrow" from the pension money to pay executive salaries/bonuses and if the company then declares bankruptcy, the borrowed money does not have to be paid back. From what I have read, the rules in Canada don't allow this.


Cheers


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## Eclectic12 (Oct 20, 2010)

kcowan said:


> ... The RRSP is just an opportunity to have your tax money to put to use until you pay the tax on withdrawal. In my case, I really appreciated that option, but nowadays I would top out my TFSA before using the RRSP.


Where one is in a higher income level and estimates their income to be much lower in retirement, there may be a tax rate advantage.




kcowan said:


> ... It is also useful for investments that are a nightmare for record keeping like REITs. You can ignore everything since it is tax-protected.


Where one hates the paperwork ... sure.

Having gone from discovering the bookkeeping that needed to be done, after the info was not easily available (painful!) to learning what was required ... with the use of a spreadsheet, it is more tedious than anything. It works out to about forty-five minutes of work a year.

This is worth it to me as I have uses for the tax deferred income, where in the future when I sell - the tax advantaged capital gains rate will paid.


Cheers


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## ML91 (Dec 5, 2015)

kcowan said:


> Well your DC plan will add to your asset mix. How is that invested?
> 
> The RRSP is just an opportunity to have your tax money to put to use until you pay the tax on withdrawal. In my case, I really appreciated that option, but nowadays I would top out my TFSA before using the RRSP. It is also useful for investments that are a nightmare for record keeping like REITs. You can ignore everything since it is tax-protected.


I did 40/40 US/CAD Indexes and 20% International. Since its long term ill only be doing equities!


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## djkelly (Feb 18, 2016)

With no debt and TFSAs maxed out the next no brainers are an emergency savings account (it can be small because you can use do a TFSA withdrawal if the emergency is excessive) and an RRSP. If you can max out your TFSA and RRSP ever year, starting at the age you're at, you're going to be set up nicely for the future. You're soon to be spouse should be happy with you! Which BTW, is probably the next question for you: is your spouses TFSA and RRSP maxed out? If not, it's best to start coming up with a plan to make that happen too.


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## BigMonkey (May 31, 2016)

I'd contribute to your RRSP. If you think your salary will be in a higher bracket within the next few years, don't claim the deductions and claim it when you are the next tax bracket.


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## sprocket1200 (Aug 21, 2009)

true, atleast u get some thing out of it. for $8K you can buy a lot of whores.....


none said:


> Buy a $2000 ring and spend the other $6000 on a better honeymoon.


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## none (Jan 15, 2013)

sprocket1200 said:


> true, atleast u get some thing out of it. for $8K you can buy a lot of whores.....


That escalated quickly.... :upset:


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