Saving for retirement is the single most important financial goal for most investors.
There are some rules you should observe to help make sure that you have enough financial resources on hand to retire when you want and live comfortably.
1. Maximize your contributions to all tax advantaged retirement plans available to you. Tax deferred compounding is very powerful and money in RRSP’s grows in that manner. Put as much money as you can possibly afford in such plans.
2. Start with tax-deductible contributions. Retirement plans allow you to make contributions before taxes. This gives you an added benefit of lowering your current taxable income. RRSP’s offer this advantage.
3. Don’t withdraw money from retirement plans before you need to. If you do, you will pay taxes at current rates, perhaps on top of other income. Minimizing taxes is important.
4. Review your retirement investment portfolio at least twice per year. If your personal situation or financial market/economic conditions have changed, you need to consider what to do.
5. Diversify ! You should avoid investing in just one type of asset. Like your overall financial plan, your retirement portfolio should be spread across different types of assets to smooth out market volatility.
6. Don’t panic in hard times. Every plan suffers setbacks during the course of a long term plan. You must expect losses from time to time and learn not to panic when your portfolio hits a rough patch. However, if a large crisis is looming don’t be afraid to move to cash until the storm is over.
7. Increase your savings; not your risk. If you feel that you need more money in your retirement RRSP, dig deep to find additional money to allocate toward retirement. Do not throw existing money at riskier investments hoping that it will pay off. Hope is not an investment strategy.
8. Don’t share your money with others unnecessarily. Educate yourself and become your own financial manager and then use discount brokerages, no load funds and fee only financial planners who have no built in conflict of interest.
9. Consider using TFSA’s for tax sheltered growth.