RRSP

An RRSP is a registered account that allows you to make tax-deferred contributions towards your retirement savings plan. Subject to certain limits, each dollar you contribute to the plan lowers your taxable income by the amount you invest. Once you have made a contribution to an RRSP, your investments can grow tax-free until withdrawn.

The goal is to defer your tax payments on the money you contribute until you’ve retired, at which point you will most likely be in a lower tax bracket.

RRSP Strategies

Strategy # 1 – Talk to a financial advisor
Talk to your financial advisor to determine which strategies will help you achieve your investment goals. Sound, professional advice is critical to achieving your retirement goals.

Strategy # 2 – Start as early as possible and invest regularly
There are many ways you can contribute to an RRSP: through a Pre-Authorized Chequing (PAC) plan, a group RRSP or even a self-directed RRSP.

Monthly contributions versus yearly lump sum contributions are not only easier, but also provide the benefits of dollar-cost averaging and compounding. If your employer offers a group RRSP, your contribution can be automatically deducted from your pay cheque. If possible, try to maximize your contribution each year to make the most of tax-deferred compound investment returns.

Strategy # 3 – Diversify your portfolio and increase foreign content exposure
Studies have shown that up to 90% of a portfolio’s returns are determined not by the choice of individual securities, but by the way the portfolio is diversified. You can diversify your holdings by asset class, market sector, geographic region and investment style. The principle remains the same: by diversifying your holdings in a variety of ways, you lower the volatility of your portfolio while increasing its potential for higher returns.

Since Canada only represents approximately 3% of the global marketplace, you should also diversify your portfolio by investing outside Canada.

Strategy # 4 – Utilize available contribution room
If you have unused contribution room available or think you have fallen short on contributing to your RRSP, speak to your financial advisor to determine whether a Manulife Bank RRSP loan may be right for you. Once you receive your income tax refund, you could use the refund to help pay down the loan.

Strategy # 5 – Consider income splitting
If your spouse’s future tax rate is expected to be lower than yours, consider income splitting by directing your contributions to a spousal RRSP.
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