Financial Focus 2007-05

It's Time for an RRSP Checkup Just because the March 1st RRSP deadline has come and gone, don't ignore your retirement savings. Investing in an RRSP is a year-round job, and doing that job well can lead to a more comfortable future. In fact, this is the ideal time to take stock of your RRSP. In the absence of the immediate pressure of finding money for your annual contribution or making last-minute investment decisions, you have a chance to closely examine your retirement plan and make sure it's meeting your needs. Since a retirement plan is all about building wealth to produce an adequate level of retirement income, the first step in your RRSP checkup is to make sure your savings and investment goals are clearly defined. You won't know if you're headed in the right direction unless you know where you want to go. How much income do you need in retirement, and how much in savings and investments do you require to generate that income? Your goals should reflect your financial objectives for retirement, taking into consideration the lifestyle you intend to live. Consider all sources of income, including pension plans, before you calculate how much must come from your RRSP. With these dollar amounts in mind, look carefully at whether your current investments are likely to get you there. But remember, your RRSP shouldn't be considered in isolation. You may have non-registered investments that can fill the gaps. Are your investments well diversified? Studies show that the mix of asset types is a more important determinant of returns than your selection of individual securities. Balanced portfolios should include all the major asset classes to take advantage of current and future investment conditions. As part of your diversification strategy, make sure you have global investments in your retirement plan. Because Canada represents only a small portion of world financial markets, it's important to take advantage of investment potential outside the country. Your long-term investment goals and risk tolerance should be key to determining how much to invest in foreign securities. Tax-efficient investing can also help generate the returns you need. Consider holding higher-taxed interest-generating investments inside your RRSP to take maximum advantage of tax deferral. Otherwise you'll end up paying taxes at a high rate on those returns. You can hold investments such as equities, which are eligible for capital gains and dividend tax breaks, outside your plan. And finally, simplify your financial life by consolidating. If you have RRSPs and other investments spread among a range of financial institutions, bring them together under one roof. When you consolidate your accounts at one institution record keeping and investing are simplified. This allows you to better plan your financial future and to make changes in your portfolio when required. It's a good idea to work with your advisor when doing an RRSP checkup. A professional can offer valuable help in determining whether your retirement savings are working for you, and show you how to stay on track to reaching your goals.

 

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