Wealthbar’s All-in-One Guide to Understanding Retirement Savings Options: Part 3
Welcome back to our three-part series on retirement savings options. If you haven’t read parts 1 and 2, start at the beginning!
In parts one and two, we looked at government-mandated savings and the various options provided by employers. Here in our final post, we’ll dive into personal retirement savings options, the associated taxes to watch for, and a final note on the importance of savings.
Personal Retirement Savings
In your last option for savings, you can save inside a personal account, called Registered Retirement Savings Plan or an RRSP. RRSP is subject to a limit described above minus any monies already saved in a RPP and subject to a money Purchase Limit.
RRSPs grow on a tax deferred basis, which means you are not paying tax on deposits, but you are paying income tax on withdrawal. What is important to note about RRSP is that you do not pay investment tax on growth, but you do pay income tax on withdrawal.
TFSAs or Tax Free Savings Accounts can be an important addition to your retirement savings plan. If you do not
Your savings are an important piece of your retirement. The amount of income you can draw from savings will vary depending on how much you save before retirement and how the money is invested. A number of different account types are available, including Registered Retirement Savings Plans, Tax Free Savings Accounts, and non-registered accounts. Which accounts are right for you depends on your unique situation.
Canadians love real estate, and for many Canadians, real estate is the most valuable asset they own. Downsizing the family home upon retirement can provide extra cash to invest and generate income. Many people count on their home to help fund their retirement, but this comes with risks. What if the market takes a downturn just before retirement? What if you can’t find a suitable replacement home for a price that works for you?
For those fortunate enough to own a vacation home, they may consider selling it when they retire to get some extra cash and eliminate the associated responsibilities and costs.
Another way real estate can provide income in retirement is through a rental – or investment – property. Consistent rental income in retirement is as good as an extra pension, but it too comes with added costs and risks.
Business owners have some additional options for funding their retirement. They can sell their business, withdraw capital or generate income from retained earnings that have been built up and invested over the years, or even maintain ties to the business by providing guidance and consulting services to the new operators.
For the most part, you do not have to worry about taxes inside your retirement savings, at least not until you retire. What is important to note is that if you do have a company pension and personal savings that you are not in a situation where you would be paying income tax in retirement at a higher bracket than you are saving and to preserve income tested sources of income in retirement.
For more information on how to optimize your retirement savings, see our blog post here.
The Importance of Planning
With all these different sources of income and tax considerations it can be hard to make sense of how it all fits together. Should I save in an RRSP if I have a pension? Should I add the voluntary increase to my pension? Should I incorporate and not pay into CPP?
Working with a financial advisor can help you answer these, and many other, questions about your retirement.
So, how can WealthBar help? The free tools on our site let you create a Financial Plan tailored to your situation, and request a review with an advisor. We’ll show you how much to save for retirement, help optimize your savings across multiple account types, and understand the impact of debt on your savings and long term goals. If you’re already retired we can help you make sense of your retirement income and give you advice about which accounts you should draw down on when. We can also help you structure your investments to optimize for taxes today and later in retirement.
Visit WealthBar.com today to start your Financial Plan or contact us for more information.
Can’t wait and want to get started on saving for retirement right away? Sign up for WealthBar and create a financial plan with your dedicated financial advisor for free!