Shifting RRSP strate­gies for younger and older in­vestors

The Hamilton Spectator - - BUSINESS - DAVID HODGES

TORONTO — RRSPs play a ma­jor role in paving the way to re­tire­ment for many Canadians, but strate­gies for us­ing the long-term sav­ings ac­count will evolve through­out the course of life.

Cer­ti­fied fi­nan­cial plan­ner Ja­son Heath of Toronto’s Ob­jec­tive Fi­nan­cial Part­ners pro­vides ad­vice to two in­vestors on op­po­site ends of the spec­trum:

Young money: Start­ing RRSPs on a lim­ited bud­get

Mark Ocampo, a 33-year-old project man­ager in Toronto, feels he’s fall­ing be­hind at set­ting aside money for re­tire­ment.

Ocampo says his RRSP con­tri­bu­tions are pretty small right now, as he and his part­ner are more fo­cused on chip­ping away at the mort­gage on their con­do­minium. They’re also think­ing about a move and try­ing to save for a down pay­ment on a ground level home.

“I’m put­ting in a lit­tle bit per month into my RRSP, about $50,” Ocampo says. “In my 40s, I plan on get­ting more se­ri­ous about RRSP in­vest­ing once we have a house.”

In the mean­time, he’s thank­ful his em­ployer pro­vides him with a de­fined ben­e­fit pen­sion plan and the op­tion to join a stock shar­ing pro­gram.

“I have lim­ited cash flow right now,” says Ocampo. “I’m try­ing to get the most out of my money.” Sav­ings tips and strate­gies As a young per­son, Heath says Ocampo is mak­ing a lot of smart de­ci­sions now that will put him in a good po­si­tion when he later has more dis­pos­able in­come avail­able.

“If you can get used to sav­ing — and not spend­ing —$100, $250, $500 a month, you won’t ever miss that money,” Heath says.

Tak­ing ad­van­tage of work­place plans is an­other smart way Ocampo is aug­ment­ing his re­tire­ment sav­ings.

“If your em­ployer of­fers a com­pany match on a re­tire­ment sav­ings plan, whether an RRSP, de­fined con­tri­bu­tion pen­sion or other sav­ings plan, take it,” Heath says. “Don’t say no to free money.”

Heath says Ocampo may want to fo­cus on fees in or­der to hold on to more of his in­vest­ment re­turns.

“The fi­nan­cial in­dus­try is of­fer­ing more and more in­vest­ment op­tions to peo­ple with less and less money,” he says. “Some robo-ad­vis­ers don’t even charge fees on smaller ac­count sizes. You don’t need to be a mil­lion­aire to in­vest.”

The home stretch: Get­ting ready to tap your RRSP

John Wil­son, 65, re­tired last year from his job as ath­let­ics op­er­a­tions man­ager at Car­leton Univer­sity. Now, he is think­ing about the right time to start un­wind­ing his RRSP.

With his mort­gage paid off years ago and his adult chil­dren fi­nan­cially se­cure and in­de­pen­dent, Wil­son made the most of his RRSP con­tri­bu­tion space in his fi­nal work­ing years, max­ing it out.

But by the end of the year in which he turns 71, he’ll need to con­vert his RRSP into a Reg­is­tered Re­tire­ment In­come Fund, or RRIF, and start with­draw­ing the money.

“We use an ad­viser at the bank, so I have to sit down with him and start plan­ning to­ward that point,” he says. “What’s the best route? I don’t want to sup­port the gov­ern­ment any more than the ex­tent that we al­ready do.” How to avoid the tax bite Heath says early RRSP with­drawals be­fore a manda­tory RRIF with­drawal can be a great idea if you’re re­tired and your in­come is low.

“Pay­ing a bit of tax to­day, rather than de­lay­ing your with­drawals un­til age 72, may mean you pay less tax over your en­tire life and in­crease your life­long re­tire­ment in­come,” he says.

An­other tax-ef­fi­cient strat­egy is pen­sion in­come split­ting, Heath says. This al­lows those over the age of 65 to split up to half of their in­come with their part­ner — but to qual­ify for in­come split­ting, the RRSP needs to be con­verted to a RRIF.

For cou­ples in dif­fer­ent tax brack­ets, pen­sion in­come split­ting al­lows some of their RRIF in­come to be taxed in the hands of the lower-earn­ing spouse.

Heath says it’s cru­cial to build a re­tire­ment plan that mod­els your fu­ture in­come.

“How much can you af­ford to spend? What rate of re­turn do you need to earn? How much will you need to with­draw each year from your in­vest­ments? These are em­pow­er­ing ques­tions to an­swer.”

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