20Twenty Wealth Management

A registered retirement savings plan (RRSP) is an account designed to help Canadians save for retirement.

The money in an RRSP can be used to buy a whole host of investments—mutual funds, ETFs, stocks, bonds, and the like. While the investments are held in your RRSP, you won’t have to pay tax on any interest, dividends, or capital gains you earn.

If you contribute to an RRSP with After Tax money, you will receive a tax deduction for the year in which you contributed.

The Tax-Free Savings Account is an investment instrument available in Canada that provides tax benefits for saving.

Investment income, including interest, capital gains and dividends, earned in a TFSA is not taxed in most cases, even when withdrawn.

It really depends on individual situations.

In short an RRSP works best when the investor is either in the higher tax bracket or consistently contributes the tax returns gained from deductions back into investments.

The Tax Free Savings is an excellent vehicle to allow you to save less than you would in and RRSP, but receive the same net after tax on retirement.

Ideally everyone should have both in their portfolio upon retirement.

An RRSP is an investment instrument.

A mutual fund is a basket of stocks and bonds one can invest in within an RRSP. Other investments used underneath the RRSP “Umbrella” include GIC’s, Money market, Stocks, Bonds and Long Term Savings accounts.

The short answer is “both”.

Most work pensions (like the Public Employee Pension Plan) provide matching employer contributions to a certain point. We recommend maximizing this benefit. Doing so, in effect, doubles your money as you contribute.

However, any money you have available for investment over and above the maximum matching contribution should be invested with an independent financial firm (such as ours!). This is because most pension plans lack flexibility and have limited investment fund options.

There are a number of things you can do to ensure you have enough to retire (while still being able to live your life along the way).

Most importantly is to start investing, invest monthly and STAY invested.

Investing monthly will help average out the ups and downs of the market and ensure that you are “buying low” when the opportunity arises. Staying invested makes sure you don’t make the mistake of an emotional withdrawal from a down market, thus crystalizing a loss.

Believe it or not, the single greatest threat to your retirement nest egg is not a market crash. It is a catastrophic and prolonged illness requiring long term care.

A married couple has a 60% chance of an illness requiring long term care in their lifetime.

The average length? 3 years. The average cost? $40,000 per year(not including lost income).

Insurance should be considered to offset potential costs. Otherwise, it will be your retirement portfolio that will ultimately be tapped to cover the bills.

Two words: Buy In.

Ask yourself, if you were in the market for a new home, would you want to buy when the market is smoking hot or depressed?

Right! It is the same with Mutual Funds.

When the market experiences a downturn, think of it like a “close out sale” at Costco. The lower the unit cost of the underlying funds you buy, the greater the return when the inevitable bull market revs up. Problem is, we can never predict when the “top” or “bottom” of the market will hit.

The best way to make sure you get some of these deals is to invest Every Month and Stay invested.

Simply put the lower your risk tolerance, the lower your return potential.

We will spend a great deal of time with you to discover your risk tolerance.

Your Risk Tolerance = the investment risk level you can put up with and still sleep at night.

The best way to ensure tax efficiency in the future is to not “over-weight” your registered investments.

Balance your registered investments with non-registered investments like TFSA and open investments.

Many retiring folks who grew up just “drinking the RRSP Kool-Aid” are now finding themselves facing Old Age Security claw backs and being forced into a higher tax bracket.

That’s what we are here for!

We work together with our clients to help them project how much income they will need in retirement. We project everything from standard monthly expenses to annual trip money, hobby’s and discretionary spending. Once we create this “destination”, we work out a “roadmap” for the most efficient way to get there.

Every year we get together to make sure we are on track.