Plan For Your Retirement

It takes careful planning years in advance to achieve the retirement of your dreams. So don't wait: start building for your retirement with tools to help you accumulate the capital you'll need to maintain your current lifestyle. The Registered Retirement Savings Plan (RRSP) is the ideal tool for achieving this goal. With an RRSP, you can accumulate funds tax-free until you retire. For more information, check out these retirement planning capsules.

Diversification is a basic investment strategy: it's the best way to minimize risk and ensure high potential returns. This is how it works: by combining different types of investments, you profit from the very best while minimizing exposure to lesser performers. This generates solid returns over the long-term. But how do you know whether your portfolio is properly diversified, which products to include and in which proportion?

The longer it adds up, the bigger the final number. Thanks to compound interest, the sooner you begin contributing, the more your investments will grow. For example and assuming a constant annual return of 6%, an annual $3,000 RRSP contribution beginning at age 25 will grow to $354,362 by age 60. If you wait until age 35 to start your RRSP account, you'll have to contribute twice as much annually, i.e., $6,093.27 to have the same amount at retirement. A saving tip: put money aside on a regular basis, monthly if possible.

Interest-bearing investments purchased at the beginning of the tax year accumulate more interest than those purchased at the end of the taxation year. An alternative strategy is to use our periodic investment plan to make monthly contributions to your RRSP. Budgeting for periodic saving is easy and you can choose your contribution frequency.

Your needs and financial position are constantly evolving. You should review your portfolio whenever a life event has an impact on your investor profile (home purchase, birth of a child, inheritance, loss of employment, etc.). At least once a year, check to ensure your portfolio can handle these changes.

Save more by taking advantage of unused RRSP contribution room and maximizing you RRSP contribution. Investing an extra few hundred dollars in your RRSP every year could translate into thousands of dollars down the road. Use a salary increase, annual bonus, tax rebate, investment income or any other additional income to maximize your contribution. Any resulting tax refund can be used to finance other projects or pay off debts.

If you hold interest-bearing investments (e.g., guaranteed investment certificates, stripped coupons, bonds and bond funds) in a non-registered account, move those investments into a registered account (RRSP). These types of investments are more heavily taxed when held in non-registered plans. By putting them in your RRSP, you can defer taxes payable on those gains until after retirement, and reduce your tax bill today. However, even though tax considerations are an important aspect of investing, your investment strategy should always match your investor profile.

By contributing to an RRSP on behalf of your spouse, your retirement income will be split between the two of you. Your tax rate should then be lower than if you had a single aggregate income.

Taking out an RRSP loan is a smart move. In the near term, you're likely to get a tax refund that can be used to partially or even fully pay off the RRSP loan. And in the long term, the value you build into your portfolio far outweighs the cost of borrowing.