"I want to save for my retirement, but … I don’t know the right choices to make!"

It is that time of the year again. RRSP advertisements are everywhere and it can all be a bit confusing. We all know saving for retirement is the right thing to do, but how do you know what choices to make? Should you borrow for your annual contribution, invest short or long term? Do I save in my TFSA first or after my RRSP? Or do I even make a contribution?

Make a contribution or not

The first question you should ask is if you can afford to make a contribution. If you have not budgeted for it in advance it is time to take a hard look at your monthly cash flow. By clicking on Financial Cardio Fitness, you can use the test to get a handle on your cash flow. If most of your cash is going to interest and loan payments it may make more sense to take your savings and reduce your debt. As these obligations are reduced and paid off a workable savings plan can be developed. If you have a savings budget – does it make sense to divert some of it into a RRSP? If your savings are meant for emergencies or to provide a cash flow cushion – diverting funds to a RRSP may not make sense. If making a contribution makes financial sense, but you are short of cash then what?

Borrowing to fund your contribution

Typically, if you can pay off the loan in one year, borrowing to make your contribution makes sense. While you will be paying interest, the tax-deferred growth from the investment will likely be greater than the total interest paid on the loan. To fully leverage your contribution pay back the loan with any income tax refund you receive.

Investment options for your contribution

Any investment strategy starts with a plan and a solid understanding of your financial goals. Whether you choose to lock in your money short or long term or to place it in a registered mutual fund depends on many factors such as your risk tolerance, how many years left before you retire and your other investments.

Not all income levels are equal in a RRSP. Some current and expected after-retirement income levels actually do not benfit from a RRSP. To get a better idea on what the best strategy is for your savings it is important to talk to your financial advisor. They can help you determine whether an RRSP is in your best interest and the best way to invest it.

Without a solid plan it is best not to lock in your deposit for long. If you are not sure what option works for you – park it in a short term deposit and then make an appointment with your financial advisor. It is time to make sure your savings plan makes sense, now and into the future. Not sure what to do? Click on Financial Strength Fitness and you can use the test to help you figure out your savings situation. Bring in your results or come in to your branch and we can do the test together. We want to C.U.so you can get a handle on your retirement plan.

TFSA deposit: Before your RRSP or after?

Absolutely you will be saving in both of these vehicles, but which one you should maximize is very much dependent on your income level, your current RRSP savings and your projected income at retirement. There are tax advantages for each savings vehicle and you will want to make sure you maximize these now and after you retire. Speaking to your financial advisor is critical before you make the decision.