Many are asking, “will I ever be ready to retire?” When we discuss the cause and effect realities with most who have not saved much for retirement, we find they generally admit these reasons:
- “Procrastination is my main problem.” Waiting to invest can leave you near-broke or dependent on the government in retirement. You may already look back in time and acknowledge one or more investor myths.
Considerations: Successful investors have learned that it is important not to believe everything you hear in the media or gossip – financial myths can create fear and keep you from building wealth.
- “I never seem to have a lump sum to invest in my RRSP”. Some may think they do not have enough money to invest all at once.
Considerations: You don’t need a large lump sum to start investing now. It is more important to engage in a consistent retirement savings plan. Try dollar cost averaging (DCA)—a program that allows you to buy more fund units when the markets are down and fewer when it is up, smoothing the effect of the market fluctuations. DCA plans work well when achieving long-term growth with equity funds (tend to fluctuate more than other funds). As well you can start with as little as $100 per month.
- “I usually wait until the RRSP deadline to invest in my RRSP.” Investing in an RRSP offers a significant tax deduction from your income and ongoing tax deferral on retirement savings.
Considerations: You can make monthly or lump sum contributions to your RRSP. If an investor cannot make a lump sum deposit, there is always the option of using an RRSP loan. This strategy allows a person to make the RRSP deposit and receive a tax refund though future monthly payments will be due to repay the loan. Remember that any income tax monies saved can be used to help pay back the loan. Based on your financial situation and interest rates, it may be wise to borrow for RRSP purposes or begin making monthly contributions for the next tax year.
- “I think I will invest in a Tax-Free Savings Account because I’ve heard that RRSPs are taxed.” RRSPs are taxed when you begin to draw income during retirement or before. RRSPs offer you a substantial tax break deductible from your investment income. This allows more money to accumulate over time.
Considerations: Additionally, consider investing outside of your RRSP by using the Tax-Free Savings Account (TFSA). You can currently contribute up to $6,000 per annum to their TFSA account. Depending on your goals and retirement objectives, you may need to invest in other income sources. See the chart below to see what you can invest per year accumulatively.
- “I’m over 55, so I’ve failed as an investor.” Some enter retirement gradually by remaining in the workforce on a part-time basis. Part-time working income can also help to preserve some of your RRSP/RRIF portfolio by continuing investments because you will need to withdraw less.
Considerations: You can achieve a higher government pension income by waiting to take your CPP and OAS later. The main question is, “What does retirement mean for me?” For some, it means having choices to do leisure activities; for others, it may mean the ability to go back to school, travel, to get another job. For many, it will mean scaling back expenses, moving into a smaller home, or renting. Retirement at 55 depends on your situation and what you wish to do after 55.
We are only a phone call away. As an advisor, I want to help you maximise your retirement income. Legislation can change with registered investment programs.