I assume that Americans reading Gail Vaz-Oxlade are like "RRSP what?" the same way that Canadians read Suze Orman and are like "401(K) huh?"
Basically, wherever you live, it's never not a good idea to stow some savings away for retirement. Maybe somewhere like Sweden or Iceland, where I have the vague idea they give you like 5 years paid maternity leave and free university, it's not an issue. But in Canada, the US and the UK it's kind of a big deal.
So! How to be a responsible frugal-style person in every country? Here's what I can figure out (get ready for a looot of acronyms):
- The main kind of retirement savings account up here are called RRSPs (Registered Retirement Savings Plans). You put money into them and that decreases your income so that you may pay less taxes on your income. These funds cannot be withdrawn except in specific instances - buying a house, for instance. There is a limit to how much you are able to put into RRSPs every year.
- Canada also has GICs (Guaranteed Investment Certificates), which are kind of like RRSPs in that you put money into them for a fixed amount of time, but unlike RRSPs, you can withdraw them whenever you want -- OK, not whenever you want, but you set up a term that can be whatever length you want it to be. Unlike playing the stock market, this is a low-risk investment with a guaranteed time period and a guaranteed rate of return.
- Canada also has TSFAs (Tax Free Savings Accounts), which I like best. These have more flexibility than RRSPs or GICs, as you can basically withdraw from them whenever you want. My boyfriend set up one of these because he'd maxed out his RRSP contributions, but wanted to keep saving. The "tax free" part isn't exactly like with an RRSP, as your contributions aren't deducted from your income tax, but when you withdraw funds, that money is not taxable.
- The main American retirement savings plan is called, awkwardly, a 401(K). (Sidenote: this is a terrible name) (I guess it's derived from some part of the Internal Revenue Code? Whatever that is) but it works similarly to RRSPs in Canada. Anyway, it's a retirement savings plan similar to RRSPs. There is a magic thing you can do (Suze Orman is always talking about this) where your employer can match your 401(K) savings. I don't know if you can do that in Canada with RRSPs too?
- Again with the weird names: tax free savings accounts in the US are called Roth IRAs. Why? Who is Roth? I get that IRA stands for Individual Retirement Arrangement, but why bring Roth into it? Anyway, this is quite similar to a Canadian TSFA.
- You know how on British TV shows they call old people "pensioners"? That's because their retirement plans, as far as I can tell, are all just called pensions. I mean, there's the one you get from work, but you can also purchase a personal pension plan from an insurance company or bank. I don't know all the details about this, so British people please explain this to me in the comments! Anyway, from what I can tell, British RRSP/401(K)s are just called Pensions.
- What I do know for sure is that the UK has their own version of a TSFA/Roth IRA which is called an ISA (Individual Savings Account). An ISA in the UK is tax free savings, similar to the options in Canada and the US. An ISA is meant for investment and savings in a way to benefit your tax status.
Moral of the story
Whichever of these three countries you live in, there are options both for long-term retirement planning, as well as tax-free savings plans to save up money you can use earlier. Responsible spending is similar, but not exactly the same in each of these countries. Obvs you need to sort this all out with your financial advisor, but it's good to know what terms to use for the country you live in!
Do you guys have any or all of the above accounts? Do any of you commute from country to country and have all SIX accounts?