Angela Iermieri* | Financial Planner | Desjardins Group
Your target retirement date and desired level of income will influence how much you need to set aside and the savings strategy that's right for you.
Since your goal is to retire comfortably, why let your unused RRSP contribution room just sit there?
RRSP contribution room
Here's how it can serve you well a few years from retirement.
- Make a bigger contribution to reduce your taxable income and get a higher tax refund. If you re-invest this money in your RRSP, you'll boost your retirement savings even more and make up for what you didn't contribute in past years.
- Contribute to your spouse's RRSP. This is also a good option if you want to take advantage of income splitting at retirement. This strategy allows the higher-earning spouse to get a tax deduction now. At retirement, with income splitting, the two incomes may equalize and also reduce your taxes.
- Also contribute to a TFSA to build your retirement savings if you've used up all of your RRSP contribution room.
If your financial situation allows, taking out an RRSP loan to use your available contribution room will give you the opportunity to quickly boost your retirement savings.
To make sure the loan is really of value to you, follow these best practices:
- Reduce the balance of your RRSP loan with the tax refund you get by contributing to your RRSP. This will allow you to pay off your loan more quickly. If your borrowing cost is lower than the return on your investment, you'll only enjoy the upside of this strategy.
- Choose a short-term loan if you're close to retirement. It's always best to retire without extra financial commitments.
- Use the loan as financial leverage if you expect that your marginal tax rate will be substantially lower in retirement. You'll now receive a higher tax deduction than the tax rate you'll pay when you make withdrawals from your RRSP.
It's good to maximize your contributions. But it's even better to update your savings strategy so you can invest them well. Discuss your retirement plan with your advisor. You'll boost the return potential of your savings, which will allow you to reach your goals by your target date.
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* Financial Planner and Mutual Funds Representative for Desjardins Financial Services Firm Inc.