Tag Archives: Investment Planners

What Is a Registered Retirement Plan and Is It Good For You

How Registered Retirement Savings

Plan Can be Useful for Building Savings?

If you want to build your savings then registered retirement savings plan can be quite helpful in accomplishing your goals. Let us find out more about registered retirement savings plan (RRSP) and how it can be beneficial for you.

An Insight into RRSP and Its Benefits

personal financial advisorHere we will look into several details related to registered retirement savings plan such as:

  • What are RRSPs?
  • How spousal RRSPs can be beneficial for you and your spouse?
  • What are the advantages of utilizing group RRSP?
  • What is referred to by locked-in RRSP?

Registered Retirement Savings Plan 

First thing you will have to do is contact your personal financial advisor to know more about RRSP and how it can be useful for you. So, let us delve into details of what RRSP is. Basically, it is one form of savings plan where earnings from investment as well as all your contributions build up on a tax deferred savings. It is also worth mentioning here that at the time of withdrawals, these will be taxed in the same way as other incomes are.

Usefulness of Spousal RRSP

As the name suggests, it is one type of RRSP in which contributions are allowed by a person to RRSP of his or her spouse. The main advantage of this from of registered retirement savings plan is that couple can utilize spousal RRSP for lowering taxes they have to pay. How this can be possible? Let us find out. Here spouse earning higher income makes contributions towards spousal RRSP and when both retire, spouse getting lower income starts withdrawing from the plan. This way if you have higher income then you can easily divert income earned after retirement towards your spouse and lower the amount of tax both of you will be liable to pay during your retired life.

Benefits of Group RRSPs

Such RRSPs are sponsored by employer and in this form of registered retirement savings plan participating employees get their individual accounts. You should discuss this type of RRSP with your personal financial advisor to fully understand all aspects related to it. However, the main positive point about group RRSPs is that you are allowed to contribute to this account directly from your payroll. Moreover, before tax funds are utilized for making the contributions, meaning you avail tax benefit right at the time without the need to wait for next year to receive the tax refunds.

Locked-in RRSP

Locked-in RRSP refers to a situation where funds available in a registered pension plan are transferred into registered retirement savings plan. Primary aspect about locked-in RRSP is that here you are debarred from taking withdrawals from this type of account and payments which are allowed are the ones related to retirement income payments. There are two things which can happen when you retire:

  • Conversion of funds available in RRSP into a form of life income fund or
  • Funds are used for purchase of annuity.

A Final Note

To from details it is quite clear that registered retirement savings plan is a very attractive investment plan and you should get more details about the same from your personal financial advisor.

How To Avoid Any Negative Impact On Your Retirement Investment

Financial Risks Which Can Have a Negative Impact 

Over Your Retirement Nest Egg and Measures to Reduce Those Risks

If you are interested in building investments which will help you live a stress free retired life then it will be necessary to consult a certified financial planner. By consulting a financial planner you will be able to clearly understand common risks you will have to face and how to overcome them. So let us delve into the details in the following sections.

Financial Risks and Retirement Nest Egg

Employment Risk – Unforeseen Requirements Risk – Inflation Risk – Interest Rate Risk

There are several risks which can prove to be bottlenecks in your retirement investment planning, let us look at some of the important ones here.

Employment Risk

certified financial plannerIf you perform retirement income analysis by including supplemental income you will generate by doing a part time or full time job after retirement then it will be a great risk you will be taking.

The reason it is considered a risk is because of the fact that chances of getting a job after retirement will largely depend upon your health, family conditions and necessity to develop new skills. In addition to it, these factors may well reduce your chances of getting a job. As such, best thing to do will be do take into consideration the age by which you want to retire since it will help you have a clear idea of job prospects you will have after retirement and income you will require. 

Unforeseen Requirements Risk

Risk of unforeseen requirements can be in the form of:

  • Expenditure on health care for parents
  • Education fees of children
  • Change in marital status of a family member (such as a daughter)
  • Loss of employment

You may have to face these situations after retirement and financially assist your family members. As such, your certified financial planner will have to consider these situations and develop a financial plan which will assist you in meeting these unforeseen expenditures.

Inflation Risk

Value of money will not be same after 20 years as it is now and this creates inflation risk that it to be considered at the time of retirement planning. The main here should be to offset inflation risk so that you have enough money to meet your expenditures after retirement. Few of the things your certified financial planner should do in this respect would consist of:

  • Select equities for investment
  • Make an investment in assets such as a home
  • Choose annuities that provide cost of living adjustment

Interest Rate Risk

In case investments are made in products that have lower interest rate then in such situation growth of retirement savings will be slow, which in turn means that you will have less savings at the time of retirement. As for instance, in case there is a drop in bond's market value then interest rate will start rising and have a negative effect over your retirement income.

Summary

To summarize it can be said that you need to pay attention to retirement planning so that each and every aspect which can effect your retirement income is taken into consideration and necessary steps are taken to avoid likely problems.