When it comes to saving for retirement, Registered Retirement Savings Plans (RRSPs) are a good place to start.
The combined benefits of reducing taxable income with the tax sheltered growth over the long-term are compelling reasons to make the most of these savings plans.
Here are a few tips to make the most of your RRSP:
– start as early as you can. You’ve likely seen the numbers before but the longer you can take advantage of the tax sheltered compounding of the income and growth within an RRSP, the more you can benefit;
– pay yourself first. Saving for your retirement using convenient, automatic pre-authorized contributions is easier on your cash flow and can also help lower your investment risk through dollar cost averaging. Your regular contribution automatically buys less units when market values are high and more units when market values are low;
– reinvest your refund. If you’re at a 40 per cent tax level, your $1000 contribution generates a $400 tax refund that can be re-invested and boost retirement savings to $1400 for the same $1,000 out-of-pocket cost;
– consolidate your investments. If you have better things to do than managing multiple accounts at different locations, consolidate your holdings with one advisor. You can still diversify your portfolio across different investments but you’ll have the benefit of financial advice looking at your whole picture. In many cases, administration costs are reduced, as well; and
– seek professional advice. Most Canadians hold the bulk of retirement savings in RRSPs and the advice of a professional advisor can help avoid making costly mistakes.
Dan Allen, is a retirement income and protection specialist at the Heritage Group, in Guelph.
