As of 2024, the average Registered Retirement Savings Plan (RRSP) balance for Canadians is around $105,000. While that may sound like a substantial amount, many people may find it inadequate when considering the rising costs of living and the financial needs of retirement. As individuals prepare for retirement, it’s essential to assess whether their savings will truly support the lifestyle they envision. But how can you boost it higher?
Not enough
Unfortunately, that average RRSP balance might not be enough for most Canadians. Financial experts suggest that retirees will need approximately 70-80% of their pre-retirement income to maintain their standard of living in retirement. For someone earning $70,000 annually, that means they should aim for a retirement income of $49,000 to $56,000 per year. Given the average RRSP balance of $105,000, which translates to an estimated annual withdrawal of only about $4,200 (assuming a 4% withdrawal rate), it becomes clear that most Canadians are underfunded for a comfortable retirement. This shortfall is even more pronounced considering the increased longevity and healthcare costs retirees may face.
The RRSP, however, is an excellent tool for Canadians to build their retirement savings before and during retirement. Contributions to an RRSP are tax-deductible. This means that individuals can reduce their taxable income in the years they contribute. This can be particularly beneficial for those in their peak earning years. Furthermore, the money in an RRSP grows tax-deferred, thus allowing investments to compound over time without immediate tax consequences. This feature can lead to a significant nest egg for retirement, especially if individuals start contributing early in their careers.
Additionally, RRSPs provide flexibility in retirement. Withdrawals can be strategically planned to minimize tax impact, and the funds can be converted into a Registered Retirement Income Fund (RRIF) or annuity, providing a steady income stream during retirement. The combination of tax advantages and flexible withdrawal options makes RRSPs an essential part of a well-rounded retirement strategy for Canadians.
Consider Manulife
Now, let’s dive into why Manulife Financial (TSX:MFC) on the TSX is a strong investment opportunity right now, especially for those wanting to boost their RRSP. MFC has demonstrated impressive earnings momentum, reporting core earnings of $1.8 billion for the first quarter of 2024 – a 16% increase compared to the same period last year. This robust growth reflects a solid performance across its insurance segments and a strategic focus on higher return and lower risk business initiatives. Roy Gori, Manulife’s CEO, emphasized this positive trajectory, stating, “I’m excited by our momentum in the first quarter and by the opportunities ahead of us to continue generating shareholder value.”
Moreover, Manulife’s focus on expanding its global presence and diversifying its offerings is a testament to its long-term growth potential. The insurance company reported a significant increase in new business value, up 34% year-over-year, and robust net inflows in its Wealth and Asset Management segment. With a strong LICAT ratio of 138%, indicating financial stability, and plans for share buybacks to return capital to shareholders, MFC presents an attractive option, especially for investors looking for a blend of income and growth in their portfolios. As MFC continues to leverage its strengths and adapt to market demands, it stands poised for continued success.
Foolish takeaway
While the average Canadian’s RRSP balance sits at about $105,000 in 2024, that might not stretch as far as you’d hope for retirement. With rising living costs and the need to maintain around 70-80% of your pre-retirement income, boosting that balance becomes a priority. Thankfully, smart investments, like in Manulife Financial, could help. Manulife’s solid earnings growth and strategic focus on expanding its business make it a strong contender for those looking to grow their retirement savings with a reliable dividend stock.
