The Average RRSP Balance Isn't Enough: Here's How to Boost it

The Average RRSP Balance Isn’t Enough: Here’s How to Boost it

While it might sound like a lot, the RRSP average just isn’t going to cut it for more retirees. So here’s how you can boost it higher.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published September 17, 2024 8:45 pm EDT

| More on: MFC

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?

RRSP Canadian Registered Retirement Savings Plan concept — Source: Getty Images

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.