Diversification key to smart planning

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This article was published 27/02/2024 (767 days ago), so information in it may no longer be current.

Registered Retirement Savings Plan contributions need to be repositioned as a key component within the broader context of financial planning and not used as a standalone strategy, financial experts say.

Edward Jones senior strategist Julie Petrera said an RRSP is an integral part of a comprehensive financial strategy, but noted Manitobans are taking a strategic approach by showing interest in other registered accounts, including the Tax-Free Savings Account and the First Home Savings Account.

“While contributing to an RRSP is undoubtedly beneficial, I urge individuals to gain a comprehensive understanding of both the advantages and restrictions associated with this plan, as well as others,” Petrera told the Sun in an interview. “It’s crucial to acknowledge that each registered plan, including the new FHSA, comes with its own set of benefits and drawbacks.”

This diversification, she said, with 72 per cent of investors planning to invest in multiple accounts, highlights a well-rounded financial strategy.

Financial adviser Sifawu Usikalu said adopting different strategies can significantly impact contributors’ long-term financial well-being.

“Establish a clear annual target for RRSP contributions to provide a road map, aiding individuals in staying focused on their retirement savings objectives,” Usikalu told the Sun.

“Leveraging unused RRSP contribution room from previous years also allows individuals to catch up on contributions and potentially make larger deposits, amplifying the impact on their retirement savings,” Usikalu added. “Individuals can verify their contribution room through the Canada Revenue Agency portal.”

Directing unexpected funds — such as bonuses, tax refunds, or inheritances — toward RRSP contributions, she said, is another strategy to maximize one’s investment, adding this prudent use of windfalls enhances retirement savings without disrupting regular income streams.

On the potential advantages of income splitting, Usikalu recommended considering spousal contributions, noting contributing to a spouse’s RRSP, particularly if they have a lower income or are in a lower tax bracket, can equalize retirement savings and may reduce the overall tax burden for couples.

These strategies collectively contribute to maximizing RRSP contributions, “laying a robust foundation for a secure retirement.”

While expectations indicate steady contributions, Petrera advises contributors to delve into the benefits and restrictions associated with RRSPs, considering both short-term and long-term financial goals.

As economic uncertainties loom in 2024, Petrera offers valuable advice for contributors to assess potential challenges.

Increased mortgage rates and rising costs may impact cash flow, urging contributors to align RRSP contributions with broader financial objectives.

Petrera emphasizes the importance of considering the timing of withdrawals, given the tax implications associated with RRSPs.

Sunrise Credit Union wealth management director Sapandeep Singh advises potential contributors to explore a comprehensive suite of financial instruments, specifically tailored to meet the varied needs of retirees.

A diverse range of options — including RRSPs, RRIFs, Tax-Free Savings Accounts and short-term savings accounts — “ensures that individuals approaching retirement can choose the solution that aligns most effectively with their unique financial goals and circumstances,” Singh said.

Whether one prefers the convenience of branch services or the personalized touch of wealth services, Sunrise Credit Union caters to both avenues, he said, adding the institution’s investment solutions encompass a wide spectrum, ranging from the stability offered by Guaranteed Investment Certificates (GICs) to the dynamic potential of market investments.

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