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RRSP
Plan to Live
Well
When it comes time to retire, you probably
want to maintain or improve the lifestyle of
you working years.
Often, it is assumed this will happen
because there are government benefits
available and perhaps income from an
employer pension plan as well. The reality
is very different. Here's why:
Why RRSPs
are a Smart Solution
Registered Retirement Savings Plans (RRSPs)
are a highly popular means of accumulating
money for retirement. From a tax standpoint
there are two advantages.
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Interest or earnings under your RRSP
accumulate on a tax-free basis as long as
your plan remains in effect.
It is only when money is withdrawn from your
RRSP that tax becomes payable. If you
receive your RRSP funds in a series of
payments, such as from an annuity or a
Registered Retirement Income Fund, you can
spread tax payments over a period of years.
With so few tax shelters available, RRSPs
are in a class by themselves when it comes
to accumulating money for retirement. That's
why the majority of Canadians are best off
having RRSPs as the cornerstone of their
financial plan for retirement.
Planning for your retirement now is your
best guarantee of a financially secure
future.
Savings you
Start Today Build Wealth with Interest
The sooner you start to build your
retirement nest egg the better.
Over a long period, you can accumulate a
very significant retirement fund through
saving a small amount each year. With the
benefit of compounding interest, the end
results can be truly impressive.
A retirement plan which you start later in
life can be equally successful. The
difference is that you'll need to create
your retirement nest egg over a shorter
time. Your savings effort will also be
greater because there is less opportunity to
achieve the progressive growth that comes
from interest earning interest.
But no matter what your age, it is never too
early, or too late, to plan for a better
retirement.
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Your 10-Step
Guide to a Successful Retirement Plan
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Know where you stand
Detail all income you will have in
retirement based on the financial
resources you now have. Is there enough
money to support the lifestyle you want?
Remember that over the years you'll
probably become accustomed to an ever
increasing standard of living.
-
Define your goals
If you identify a need to build additional
funds for retirement in step 1, go beyond
saying " I must have more money by the
time I retire". Attach a figure to your
goal. "Between now and retirement, I want
to add $ _________ to my yearly retirement
income".
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Establish a plan
Develop a plan to achieve your goal. A
step-by-step approach usually works best.
For example, Set a specific dollar amount
that you'll save from each pay check. Aim
to save a percentage of you income. That
way, your retirement savings program
expands as your income grows.
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Keep to your plan
The results you want depend on a
consistent financial program for your
retirement. That's why it is important
that you stick to your plan and avoid the
temptation of "borrowing" from your
retirement savings.
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Consider the tax aspects
Tax factors have both immediate and
long-term implications for your
retirement. For example, the effect of
re-investing before tax income can be
dramatic over a long period. If your
present tax rate is 30%, it means every
$100 of interest income you earn requires
a tax payment of $30. In other words,
you've got just $70 working for you. The
same amount of interest income earned in a
Registered Retirement Savings Plan is a
different story. There is no tax for you
to pay as long as that $100 remains in
your RRSP.
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Beat the effects of inflation
Seek out savings and investments that
provide a rate of return which keeps you
ahead of inflation. As a rule of thumb,
allow for an inflation rate of roughly 5%
per year and aim for a "real" return of at
least 3%. Otherwise, you are saving little
or nothing in terms of the future
purchasing power of your dollars.
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Review options carefully
You want your money to work in the most
effective way possible to bring you ever
closer to your financial goal. To select
appropriate savings and investments for
your retirement fund you'll need to
consider such factors as the rate of
return, the degree of risk, how much
flexibility you require and the safety of
your capital.
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Let the experts help
Take advantage of the professional advice
that's available to you. Use the expertise
of individuals to help you achieve your
financial goals. Often, too valuable
information and ideas come from articles
and books written by individuals
knowledgeable in financial matters.
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Watch performance
Keep an eye on the performance of your
RRSPs and any other savings and
investments which make up your retirement
nest egg. A yearly review allows you to
see how you are progressing toward your
goals. That way you can make changes and
revisions as needed.
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Take action now
The sooner you start building your
retirement fund, the less money it will
take to reach your goal. The sacrifice is
less too. Think how much easier it is to
put aside $100 than $1000.
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