Easy ways to start planning for your retirement

Many of us start too late when it comes to retirement saving. But with these tips, you could maximize your RRSPs and go on to enjoy your life after work.

Easy ways to start planning for your retirement

RRSP basics

  • Saving for retirement has plunged to the bottom of many people's financial priorities, after buying a house, clearing credit card debts or simply having a good time. Most people only start serious pension planning after age 55, and by then it's too late.
  • Your first option for your own pension plan should be a Registered Retirement Savings Plan — a federally-regulated, tax-sheltered savings plan designed to encourage Canadians to save for their golden years.
  • Every year, you're allowed to make an RRSP contribution of up to 18% of your earned income from the year before.
  • To find the exact amount you can contribute to your RRSP, check your Notice of Assessment from last year's tax return.

Maximizing your RRSP contributions

  • Your basic target for income in retirement should be 70% of your present gross working income.
  • To make your money grow faster, you should always try to make the maximum contribution amount allowable each year to your RRSP.
  • Keep each year's Canada Revenue Agency notice of assessment on hand because it will tell you how much you can contribute that year, and lists any unused credits from previous years.
  • You can invest in treasury bills, GICs, stocks, bonds, mutual funds and even certain kinds of mortgages, including overseas.
  • Any earnings from cash or investments held within an RRSP are not taxed until they are withdrawn. An added benefit is that, within limits, your contributions are tax deductible.
  • You must contribute to your RRSP by March 1 of the following year.

Should you invest in a catch-up loan?

  • Some people borrow to catch up and it's a decision that can work well. But keep in mind that, unlike interest on money borrowed to invest, interest on money borrowed for RRSP investments is not tax deductible.
  • If you're going to take out a catch-up loan, use the resulting tax refund to pay down the debt, and never borrow more than you can afford to pay back in a year. Otherwise, you'll be running to catch up with your catch-up loans.

Invest early for lifestyle freedom

  • If you've got an asset base, you've got the freedom to pick and choose your jobs and your lifestyle. The people who don't have options are the people who have nothing to fall back on.

Should you buy-to-rent?

  • If investing for 10 years or longer, you should overcome any dips in property values.
  • Do your research. What type of tenants will you attract? How buoyant is the market and how much can you charge?
  • You'll need enough spare cash to pay the mortgage if your property is empty.
  • If you expect property prices to fall, wait until prices dip to more affordable levels.
  • Do you want your retirement income to depend upon the property market?

Smart move: capital appreciation

  • You don't have to pay capital gains tax when you sell your principal residence (one per family); so many people, if they can afford it, buy bigger homes, even if they don't need the space. This provides for greater capital appreciation without being a landlord.

Saving for retirement is a lifelong goal, so start early and use these tips to help make the most of your golden years.

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