Wednesday August 20, 2014




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Know what you need for retirement

(NC) — Whether you're already retired or soon to be retired, worries about how far your savings will take you have probably crossed your mind more than once.

Gaetan Ruest, a retirement income sustainability expert at Investors Group, says the level and frequency of income you will need and the withdrawal rate from your investments, including Registered Retirement Savings Plans, depends on a number of factors.

"The number of years you plan to be retired, whether you are a conservative investor or more aggressive, and whether you want to receive income monthly or less frequently, are all key issues," he explained. "Obviously, the longer you plan to be retired the more prudent your income plan should be. And, if you are a more conservative investor you should plan on a lower withdrawal. But the key factor is how much you plan to spend in retirement."

Ruest suggests five steps towards determining a basic retirement income strategy:

1. Add up your income from sources other than your personal retirement savings such as the Canada Pension Plan/Québec Pension Plan (CPP/QPP), Old Age Security (OAS) and company pension plans.

2. Add up your expenses in retirement, both essential and discretionary.

3. Assess the gap between your known income and your expenses.

4. Determine the required withdrawal rate from your assets to bridge the gap between your income and your expenses.

5. Make adjustments if your expected withdrawal rate is too high, based on the projected returns from your savings and investments.

Specialists like Ruest suggest you monitor your plan and adjust your strategy to improve the long term sustainability of your investment income — otherwise you may find yourself needing to reduce the scope of your retirement plans.

Source: This column, written and published by Investors Group Financial Services Inc. (in Quebec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances. More information on this topic can be obtained from your Investors Group Consultant.

How to choose between an RRSP or TFSA

(NC) — With the March 3rd deadline fast approaching for making a contribution to a Registered Retirement Savings Plan (RRSP), many Canadians are wondering whether they should invest in an RRSP, in a Tax-Free Savings Account (TFSA), or split their dollars between the two.

RRSPs and TFSAs are investment vehicles that can help us save and invest in a tax-efficient manner. While the two vehicles can complement each other, it is important to understand how each can suit the needs of our individual circumstances depending on short, medium and long-term financial goals. Here’s an overview of both:

A TFSA is a flexible and sensible option for all savers and investors, but is particularly suited for short-term financial goals such as saving for a vacation or a larger expense like a car or home renovations. It can also be used for those who have maximized their RRSP contribution.

With a TFSA, investors do not pay income tax on investment returns earned in the account and there are no taxes on funds that are withdrawn. Additionally, unused TFSA contribution room is carried forward and accumulates in future years. The federal government recently raised the annual contribution limit for a TFSA from $5,000 to $5,500.

An RRSP is a savings vehicle that allows you to save for retirement in a tax efficient manner. Contributions are tax-deductible, and savings have the potential to grow tax- deferred faster than if invested outside an RRSP. Moreover, this savings vehicle can hold a wide range of qualified investments and its funds can easily transition to retirement income.

“Canadians have many short-term or immediate needs in addition to long-term goals like saving for retirement,” says Chris Buttigieg, the senior Manager of wealth planning strategy at BMO Financial Group. “Ideally, people should consider earmarking funds for both a TFSA and an RRSP since each one offers distinct advantages, depending on your financial goals.”

For more information about TFSAs and RRSPs, speak with a financial professional or visit www.bmo.com/investments to find out which investment vehicle is right for you.

Plan now to live longer

(NC) — It has been common to plan for a retirement that ends around the average Canadian life expectancy of 80 years. But Statistics Canada tells us that people are living longer. The fastest growing portion of the population is those 80 and over, and the trend is expected to continue.

Dave Ablett, a retirement planning expert at Investors Group, says the longer-life expectancy of Canadians is great news, but it also means that you should prudently plan for a retirement that could extend to your hundredth birthday, and perhaps beyond. This means more funding for a longer time.

“For example, a woman who retires at age 65, puts her retirement savings into investments held within a Registered Retirement Saving Plan (RRSP) that earns 6 per cent, and draws $3,000 through a Registered Retirement Income Fund each month (without indexing). Ignoring taxes, she would need to have $361,000 to last until age 80,” Ablett explains. “However, if she needed income to age 100, she would need $539,000 or $178,000 more at age 65.”

(The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future returns on investment.)

Since age 65 is no longer the automatic retirement age, early or phased-in retirement, and progressive retirement, are concepts rapidly gaining in popularity.

Ablett also explained that RRSP eligible investments are a valuable, tax-savings incomebuilder, but limits on the total amount you can contribute make it unlikely your RRSP alone can deliver the level of income you’ll need for a long retirement. That means you’ll have to augment your income through contributions to a tax-free savings account (TFSA) or through a portfolio of non-registered investments that do attract taxes — and they must be carefully selected to minimize your yearly tax bite while maximizing long-term returns, the Investors Group expert noted.

Source: This column, written and published by Investors Group Financial Services Inc. (in Quebec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances. More information on this topic can be obtained from your Investors Group Consultant.


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