There is something about crossing the threshold into your 50s that can make retirement feel much closer than it might have felt before. While still not around the corner, retirement is close enough for you to actually change how you look at a Registered Retirement Savings Plan (RRSP). At 50, it feels less and less like a nice-to-have account and more like a crucial retirement tool. The real trick is to know where you stand with your RRSP.
Many Canadians wonder how much they should have in an RRSP by 50 and how far behind they are from the average Canadian.
Source: Getty Images
What’s the ideal RRSP balance?
As much as it would please people to learn the amount they should have in an RRSP by 50, there is no set amount. Since every individual has their own needs, expenses, and lifestyle, there is never a one-size-fits-all figure to have as the perfect RRSP balance when you turn 50. A renter living in Toronto with a good pension might have different requirements compared to a parent living in the suburbs who had to take a few years off work.
Fortunately, there is a benchmark that can help you get a good idea of where you should be. By 50, you should have at least a few times of your annual income saved across retirement accounts like the RRSP, the Tax-Free Savings Account (TFSA), any pensions, and through non-registered investments.
This seems like a massive undertaking, but it does not mean those who are not there at this age should panic. Averages can be misleading because RRSP balances can look different based on your situation and perspective. Someone who started saving much later in life cannot have the same saved up as an individual who started using their RRSP from the moment they started working. Many Canadians also carry unused RRSP room because they had other, more pressing financial concerns to deal with.
The average RRSP balance stands at $150,300. Since a few high earners tend to bring averages up due to massive balances, it is better to consider the median amount to get the real feel. The median is $70,000, which is still a lot.
Investing to improve your retirement savings
If your RRSP seems lower than the median amount, the fix is to increase contributions to your account while gaining exposure to income-generating assets that can accelerate your wealth growth through the power of compounding. One of the best ways to do this is by buying and holding shares of high-quality dividend stocks like Royal Bank of Canada (TSX: RY).
Over a span of the last two decades, this Canadian bank stock has returned almost 1,300% to investors after adjusting for dividends. RBC boasts a $408.7 billion market capitalization, making it the biggest TSX stock by market cap. This is a position that RBC has enjoyed for several decades. As one of the biggest institutions in a resilient market, it has the economic moat, diversified earnings, and ability to continue delivering returns for decades without fail.
Foolish takeaway
RBC has become a core holding for many Canadian investors over the decades. Its diversified earnings base, solid capital position, and a dividend history that started in 1870 make Royal Bank of Canada stock an attractive investment to buy and hold. By reinvesting dividends and contributing regularly to your RRSP, you can cover the gap with the median RRSP balance and inch ever closer to the average and beyond. RY stock can be a good starting point.
