If there is one true thing about retirement savings, it’s you should have started yesterday.
That’s why investment planners and wealth management advisors are a key component to any strategy for an individual’s post-employment years. If you begin early, these professionals are there to guide you through an effective savings plans that fits your budget.
If you’re late, they’ll help you catch up.
Canadians have until March 2 to settle their 2019 retirement investments heading into income tax season. Sunrise Credit Union wealth management advisor Stacey Vanhove says she agrees with a recent Globe and Mail article that expressed there is a lack of knowledge among Canadians regarding Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). She suggests not only booking a visit with a professional for your 2019 retirement savings needs, but establish an annual meeting to ensure you’re on the right track.
RRSPs and TFSAs were created to incentivize individuals to invest and save their money. The products are containers for various kinds of investments, which accumulate income tax-free. RRSPs allow Canadians to defer their income tax by building their savings, then paying the tax when you withdraw from it at a time when you are in a lower tax bracket.
Although not specifically designed for retirement banking, TFSAs can be used for saving, investing and withdrawing at any time. Withdrawals are tax-free because they were made with contributions of after-tax dollars.
“Honestly, the most important thing is to start early,” Vanhove said. “The younger you start, the more effective your savings plan will be through the power of compounding. When I started working at a bank when I was 25, I started putting $25 away every paycheque. If you don’t start until you’re 55, you’re going to have to put much more money in every paycheque or per year to get to the retirement goals you may want.”
Vanhove noted that for most people, budgeting for your retirement savings on a monthly basis not only creates better investment opportunities, but increases the likelihood that one will remain committed to the plan.
“How many of us have money in January and February after Christmas? When you don’t have any money, it’s hard to invest it,” she said. “When you do it every paycheque or monthly, it hurts less.”
Although RRSPs have a greater positive impact on your annual income tax claim, TFSAs are savings and investments accounts that create - as the name implies - tax-free income. Building that kind of portfolio to best fit your income tax and retirement planning is also important.
“Speak with your advisor, minimally, on an annual basis,” Vanhove said.
“Too many people put their money away and don’t look at it again. Life changes and your financial situation and goals change with it. That’s why it’s important you revisit your portfolio regularly.”