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D. Smith: RRSPs take on added importance as pensions decline

Investing in RRSPs is important. It is especially important when employer pension plans are declining.

A personal RRSP can also top up a smaller company pension plan.

Putting money into a RRSP requires planning and discipline.

Planning how much to contribute is dependent on cash flow, your annual tax rate and other saving habits.

RRSPs should not be done in isolation of other important factors in your life.

You have to pay yourself first. Contributing to your RRSP for your retirement is as important as taking care of your other financial needs.

Make yourself your #1 priority. Try to put away 10 per cent of your income for retirement.

There are many life stages to consider.

The earlier you start to invest in a RRSP means increased years of compounding growth.

You can be more aggressive with investing in the early years of your contributions.

As you get closer to retirement, your investment strategy should be more conservative.

Most people get started in their 20s and 30s.  Some people do a monthly contribution, and others do a lump sum just before the annual tax contribution deadline.

There are many expenses during the first decades of your working life.

Paying off student debt, mortgages, families to care for and saving for your children’s education are all life expenses in addition to food costs, utilities, vehicle ownership etc.

By age 40 incomes are on the rise and people start to focus more on retirement planning. Try to determine if you are on track. Do you need to increase your annual contributions?

Age 50 is the reality of friends retiring with increased discussion with your family and friends on how many years are left before retirement begins. What does retirement mean to you and your family?

Perhaps by now, your mortgage is paid and the children are raised and on their own. This is a time of serious retirement planning.

If you are on track with sufficient RRSPs, consider other investment options.

Your financial plan should include having investments in various types of registered and non-registered investments.

You may not want to have all your retirement income in registered investments.

When money is redeemed from your RRSP or RRIF, it is fully taxable.

When money is redeemed from a TFSA, it is received tax-free.

Corporate class investing in non-registered assets can result in a substantial tax deferral.

By age 60 people are thinking about retirement on a regular basis, or are already retired.

This may be the last few years you contribute to a RRSP. You have until Dec 31 of the year you turn 71 to make your last RRSP contribution providing you have available contribution room.

After you retire and start to withdraw funds from your RRSP, this is considered the decumulation stage.

This is the time to be more conservative in your investment choice.  Some of your registered investments should be in guaranteed or fixed investments. Based on your annual tax rate and other income variables, you may consider drawing from your RRSP prior to the mandatory conversion to a RRIF at age 71.

If you are over the age of 65, consider converting a portion of your RRSP to a RRIF to benefit from the annual $2,000 pension tax credit.  Other eligible pension income is company pension plan benefits, certain annuities, and LIF payments.

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