By Sheryl Smolkin
RRSP season is in full swing and since the beginning of the year, we have been bombarded with a media blitz suggesting few Canadians are saving enough and exhorting us to maximize contributions to our retirement savings plans by the end of February.
If you wonder what all this retirement planning is for, anyway, take a look at Sandi Martin’s blog or boomer & echo. She says planning for that inevitable day when you stop collecting a paycheque, or invoicing clients, or collecting ad revenue is an exercise that will let you spend more money than vaguely worrying about “saving enough” or “running out” will.
In order to save enough to retire worry-free, you need to figure out how much you will need. On the Canadian Finance blog Tom Drake suggests that for every dollar of annual income you need in retirement you should plan to have $20 in savings. That doesn’t include the value of your home because it is not earning income.
You can save in many different kinds of accounts including the Saskatchewan Pension Plan, employer-sponsored pension plans and RRSPs. But Jonathan Chevreau at MoneySense says investing in a tax-free savings account (TFSA) should be a priority for most Canadians. In fact he says the moment you make your January contribution, you should start accruing for the next year’s installment, even if it means parking in short-term cash vehicles and paying a little tax for the balance of the calendar year.
Brighter Life discusses how you can pay yourself from your retirement savings when you retire. Some of the options are annuities, registered retirement income funds, and payments from several kinds of locked-in accounts holding funds transferred from locked-in company pension plans.
And Jim Yih on retirehappy.ca reminds us that one area of tax planning that does not receive enough attention is the designation of beneficiaries when it comes to Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs).
When you open up an RRSP or RRIF, you are opening up a special contract under the Income Tax Act, which allows you to designate one or more beneficiaries. Far too often, this is done too casually and without enough thought. More importantly, as your circumstances change, like marriage, divorce or children, you should consider reviewing your beneficiaries to make sure you have the right people designated.
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