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Flash Retirement - Capsule 16

Set Your Savings Objectives!

It's not always easy to maintain your standard of living after retirement. That's why it's important to set aside a portion of your savings today.

To determine whether you're saving enough for retirement, draw up a budget based on your current expenses. Don't forget to account for inflation and the cost of your plans for the future, as well as unforeseeable expenses such as low returns or changes in your personal life.

Realistic Goals & the Right Savings Strategy

The earlier you start contributing to a registered retirement savings plan (RRSP) on a regular basis, the more your money will add up! But the longer you wait, the harder it will be to make up for lost time. A financial advisor can help you draw up the right savings strategy for you, based on your needs and your retirement goals.

Real-life Examples

If you decide to contribute $25 a week to an RRSP beginning at the age of 30, you could have some $149,000 in savings when you turn 65. But if you start saving the same amount when you're 25 at the same frequency and the same rate of return you could have as much as $207,000—a difference of $58,000!

Use the tools at your disposal!

In addition to the wide variety of investment options that can help you make the most of your savings, there are several plans that let you save tax free. In the long run, tax-free strategies can allow you to increase your savings considerably. Among the registered savings vehicles that can help you save for retirement effectively, RRSPs and tax-free savings accounts (TFSAs) are very good options. Check out the information capsules on these two plans for more information.

Slow & Steady Wins the Race!

For each year you don't contribute to an RRSP, you'll have to compensate heavily later to reach your goals. That's why it's so important to start saving as early as possible, even if you can only afford to save a little bit at a time.

All you have to do is save a little on a regular basis. Before you know it, it'll become a habit!

Saving Through All the Stages of Life

You'll have different amounts of money to set aside at different times in your life. Remember that professional and family matters can have an impact on your finances, and you may have to take a new look at your savings objectives down the road.

Between 20 and 30 years of age— You've graduated and your first job doesn't necessarily pay what you hoped. You're also faced with paying back a student loan and various debts. Since interest on a student loan provides a tax credit, some people prefer to take their time paying it off. Be careful though! If you have other debts with interest that's not deductible, make sure you're getting more interest on your savings than you're paying on your loans.
Between 30 and 40— Your career is now well under way. Thinking of buying a home? Welcoming a new member into your family? It's not always easy to save for retirement, but now is the time to think about your savings strategy. Financial institutions offer a variety of products to help you save. You can have your institution make periodic deductions from your account and invest them directly into your RRSP. If you have unused deductions, you should try to use them up. A TFSA is another viable option. This type of account allows you to save money tax free and have access to those savings (depending on which investment vehicle you choose) to meet your needs without dipping into your other retirement funds. As with an RRSP, interest on the savings in a TFSA is sheltered from tax and could pay off big when you retire.

If you already have an RRSP and are thinking of buying your first home, you may be eligible for the Home Buyers' Plan (HBP), which lets you and your spouse withdraw up to $20,000 each from your RRSPs under certain conditions. Make sure this is the best option for you and find out about the repayment terms before you decide.

Between 40 and 50— At this point, you'll probably have more money to set aside and your debt should be considerably lower. You've paid off a good portion of your mortgage and other debts. Since your career and finances are more stable, you can increase the percentage of your income that you invest in retirement. It's also important to balance out your retirement income to minimize taxes. Contributing to your spouse's RRSP may be a good idea.
Between 50 and 60— Now's the time to make sure you and your spouse reach your savings goals together. That can make all the difference! Pay particular attention to these considerations:
- A single, higher retirement income will be taxed at a higher rate than two modest incomes. Dividing your income results in a lower tax rate. If you contribute to your spouse's RRSP, you'll enjoy a tax deduction.
- If one spouse has not maxed out their RRSP, the other can pay some or all of the family's expenses and any outstanding debts if they can afford it. The other spouse can then max out their RRSP.
- It is also recommended that the spouse with the higher income cover the family's expenses and the one with the lower income invest the household's extra funds in non registered investments. This way, the spouse with the lower income can report any investment income on their tax return.

In short...

Your savings strategy is key. If it's not well planned out, you'll have a hard time reaching your retirement goals.
Take the time to go over your strategy regularly to see if you need to make any changes.
Don't hesitate to consult an investment advisor or financial planner to help you work out an effective savings strategy for a successful retirement.