Saving for retirement is an essential step for all Canadians. However, how you decide to save is dependent on a lot of different factors such as your age, risk profile, pension contributions and the lifestyle you want before and after retirement. It’s also important to understand the pros and cons of registered retirement savings. Let’s start with registered retirement savings and your financial wellness.
Financial wellness is made up of two parts: financial capability and financial health. Being financially capable means actively making good money management decisions. It is a combination of our knowledge, skills, attitudes towards money, and our sense of control. Financial health measures how we are doing in meeting our financial needs and obligations. Basically, it measures our financial state. It also means being able to meet longer-term goals.
Building a savings habit is an important step in improving financial health. Saving for retirement specifically, while important, must be balanced against your financial needs and goals before you retire. That means you need to consider all of your savings and financial needs now and into the future coupled with the lifestyle you want for retirement. So depending on where you are in your financial lifecycle, the types of products and amounts you save may change over time.
The first step in improving your retirement savings financial capability is understanding some of the terms associated with retirement savings. By improving your understanding, you will be better able to make the right choices to positively impact your financial health. While retirement savings generally have a positive impact, it is still important to understand your whole financial situation.
As our member’s financial advocate, we want to make sure that you are knowledgeable when making decisions to save part of your income towards savings of any kind. Here are some terms you may hear when talking to your Rapport financial advocate or RapportWEALTH advisor.
Roll over the items below to find an explanation for each term.
- Short vs Long Term Investing
- Cash Flow
- Marginal Tax Rate
- Financial Services Regulatory Authority (FSRA)
- Risk Profile
- Interest Rates and Inflation
- Tax shelters
- Laddering Investment Strategies
- Investment Maturity Dates
- Contribution Limits
- Withdrawal Limits
- Net Worth
- Savings Goals
Pros and Cons of Registered Retirement Savings
Like every decision, there are pros and cons when it comes to registered retirement savings. The table below summarizes some of these.
PRO
- All products – Tax savings, opportunity to use funds for education and down payment on a home
- Term deposits – Safe, low maintenance, and low risk, protected from downswings in the market, balances insured by government, interest earned on balance
- Registered savings accounts – Safe, low maintenance, low risk, funds can be added at any time, protected downswings in the market, balances insured by FSRA, interest earned on balance
- Registered mutual funds – Opportunity to add funds as there are no maturity dates, can take advantage of market increases, more flexible
CON
- All products – Significant withholding taxes and/or penalties if contribution or withdrawal limits are not followed
- Term deposits – Cannot add funds, little flexibility, funds not accessible, must be aware of maturity dates and interest rates should you wish to change instructions, cannot benefit from rises in the market
- Registered savings account – Lower interest rate, cannot benefit from rises in the market
- Registered mutual funds – Balances not protected by FSRA, not protected from market downswings therefore higher risk
There are a lot of decisions to make about funding your retirement. So, if you find yourself with questions, or you simply just want to have a conversation about your plan, your financial advocate or RapportWEALTH advisor is always just a call, email, or visit away. After all, our mission is to be your financial advocate so that you can be financially well now and into the future.