Here’s the average RRSP balance at age 54 for Canadians (and how to increase yours)

Written by Puja Tayal at The Motley Fool Canada

Age 54 is crucial when you are planning for retirement. The next few years will be your last chance to increase your pension payments, as you are still working and are probably at the peak of your income-earning potential. Taxes are also a factor to consider. The Canada Revenue Agency (CRA) offers several tax-saving instruments, such as the Registered Retirement Savings Plan (RRSP), that help you deduct your contributions from your taxable income.

How do your RRSP savings accumulate?

Average RRSP savings at age 54

Canadians aged 45 to 54 have an average of $214,320 in retirement savings, with $98,447 invested in an RRSP and $105,050 in non-registered accounts, according to Ratehub.

Why You Should Invest in an RRSP?

The problem is that keeping a large portion of your retirement savings in unregistered accounts is not tax efficient. These accounts do not allow your investments to grow tax-free. You pay capital gains taxes on each stock sale. You also pay taxes on dividends, even if you are invested in a dividend reinvestment plan (DRIP).

Therefore, it’s better to save for retirement in an RRSP because your investments can grow tax-free. Additionally, the tax refund you get from RRSP contributions can be invested in a Tax-Free Savings Account (TFSA).

How to Save More in an RRSP

Let’s say you have an average retirement savings of $214,320 at age 54 and want to increase it to $1 million over the next 11 years (when you turn 65). You would need an investment portfolio that can grow your money at a compound annual growth rate (CAGR) of 15%. Achieving a 15% CAGR is possible by investing in growth stocks. At age 54, buying growth stocks may seem aggressive, but you might consider investing in resilient growth stocks alongside safer dividend stocks.

Here are two that I like.

Constellation Software

Constellation Software (TSX:CSU) is a resilient growth stock whose price has grown at a CAGR of 30% over the last 10 years. And although the stock is currently trading around $4,300, the price has the potential to rise 20-25%. The secret behind its consistent growth is the power of compounding.

The story continues

Constellation buys software companies in niche areas that have stable cash flows. Acquire these companies and enjoy the 2-3% organic growth they bring. It then uses the cash flows from these acquired companies to buy more companies, thus increasing returns. With each acquisition, Constellation’s value grows and is reflected in the increase in its share price.

Whenever there is a dip in technology stocks, it is a good time to buy Constellation as it can acquire companies at a discount. And when technology stocks revive, Constellation shares grow at a higher rate.

Descartes Systems

Another resilient growth stock is Descartes Systems (TSX:DSG), which offers supply chain management services. It offers inventory and route management, storage, compliance and several other solutions. All parts of a supply chain are on one platform, making communication and documentation smooth and easy.

Descartes serves a wide range of companies, including e-commerce, airlines and oil and gas companies. Weakness in one sector can be offset by strength in another, allowing Descartes to steadily increase its revenues and profits. And although the business is exposed to commercial and logistical risks, its long-term growth potential remains strong.

Regardless of your age, consider buying and holding Constellation and Descartes in an RRSP to build a sizable retirement nest egg.

The post Here’s the Average RRSP Balance at Age 54 for Canadians (and How to Increase Yours) appeared first on The Motley Fool Canada.

THE Motley Fool Stock Advisor Canada the team of analysts has just identified what they believe to be the 10 best stocks for investors to buy now. The 10 stocks that made the cut could produce monster returns in the coming years, potentially setting you up for a more prosperous retirement.

Consider when “the eBay of Latin America”, MercadoLibre, made this list on January 8, 2014… if you invested $1,000 at the time of our recommendation, you would have US$21,380.01*

Stock Advisor Canada provides investors with an easy-to-follow plan for success, including guidance on building a portfolio, regular analyst updates, and two new stock picks each month – one from Canada and one from the US. Stock Advisor Canada service has outperformed the return of the S&P/TSX Composite Index by 32 percentage points since 2013*.

See the 10 actions *Returns from 10/14/24

More reading

Foolish contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software and Descartes Systems Group. The Motley Fool has a disclosure policy.

2024