Registered Retirement Savings Plan (RRSP)
An RRSP (registered retirement savings plan) is an investment account that is registered with the Canadian government and is used as a vehicle to save for retirement. An RRSP is different than a typical investment account because it provides specific tax benefits meant to encourage you to keep up with your retirement savings. What does it mean to have tax benefits?
In the case of an RRSP, your contributions are tax-deductible, which means you can deduct your contribution amount from your income each year and only pay taxes on the remaining amount. For example, let’s say Susie makes $50,000 and contributes $4,000 to her RRSP. She would only have to pay income taxes on $46,000 ($50,000 – $4,000).
You also don’t have to pay taxes on any of your earnings as long they stay in your account. Instead, you only pay taxes on the money that you withdraw in retirement which is referred to as a tax deferral benefit.
In plain English, this means that you not only get to contribute to your retirement savings tax-free each year, but your savings also grow tax-free – a great benefit that should not be overlooked.
Because of these generous benefits, RRSPs have a few restrictions like annual contribution limits and specific eligibility requirements. As a client of Planswell, you’ll know exactly how much to contribute every month and year, so you’re always maximizing your contributions with an eye on retirement.
Imagine this. You’ve just retired and have spent the last 45 years diligently saving for this moment. Suddenly, your goal is no longer wealth accumulation, but rather spending the savings that you’ve built up over the years. You have to figure out how much is reasonable to spend each month while still saving enough to live comfortably, hopefully for the next few decades. This process is called retirement spending.
What else do I need to know?
Retirement spending is very similar to the process of decumulation. Decumulation involves strategizing about the best way to spend the savings you’ve worked hard to accumulate during your working years based on critical factors like your current income streams, investment strategy, personal goals, needs and plans for an inheritance.
Most of us spend our entire adult lives at least vaguely aware that saving for retirement is a critical aspect of our financial health. However, saving for retirement is only half of the puzzle.
Once we actually reach retirement age, we’re presented with a new challenge – how to spend the savings we’ve worked hard to accumulate during your working years. This process is called deaccumulation and it requires a completely different skill set than what is needed to accumulate wealth.
To spend effectively in retirement, there are critical factors to consider like:
Income – what are your income streams?
What is a reasonable amount to spend each month that allows you to enjoy life while still saving enough for the future?
What are your needs and wants? Do you have any personal goals you’d like to reach while in retirement, like traveling the world or spending time with family?
Do you want to leave an inheritance?
Answering these questions will help form the basis for your deaccumulation strategy. Given the specialized skill required to successfully manage retirement funds, it may be helpful to consult a financial advisor for guidance.
What else should I know?
Some financial advisors may be well versed in wealth accumulation but may not truly understand the intricacies of deaccumulation. Review your deaccumulation strategy with your Plan Pro, they’ll be able to help you answer these questions and more.
If you plan on leaving your loved ones an inheritance or you’re planning to distribute your assets you will need a Last Will and Testament.
Other things you can consider in addition to creating your will include setting aside money to cover your own funeral arrangements, outlining how you’d like your life to be celebrated, and specifying who you’d like to care for your beloved pets and any charities you’d like to donate to.
If you pass without a will, you’re considered to have died intestate. This means that while the government doesn’t automatically get your estate, it does get to use provincial laws to decide how to distribute your estate and appoint your executor. Your estate includes all of your assets (anything you possess of financial or other value) and any debts you owe. What happens with your estate varies from province to province and it may be very different from what you would have wanted since the government doesn’t always take into account the specific needs of individual families.
More and more services are being created to help make estate planning an affordable and painless process. Whether you visit a lawyer or use an online service, make sure to review your legal documents regularly to keep them up to date and ensure they truly reflect your wishes and life circumstances. Store your documents safely and make sure your executor (the person you appoint in your will to act on your behalf) knows where to find it.
With most of our lives existing online, paper trails are slowly becoming a thing of the past.
Retirement is a great time to collect, review and create an inventory of your digital properties and assets. Not only for your own peace of mind but to help executors, power of attorney and trusted friends and family who may need access to this information after you pass away.
So what are digital properties or assets? Just like physical assets, digital assets can hold monetary or sentimental value (and sometimes both!). For example, a monetized YouTube Channel or cryptocurrency could have considerable monetary value, while platforms like Facebook or Instagram may hold sentimental value.
Each platform will have different policies about account transfers and access so it’s important to look into these to see what your options are. Also consider the items stored on your phone and computer like photos, unpublished journals, manuscripts, artwork etc. and what you’d like to happen to them after you’re gone.
In the past these items could be found in a safety deposit box at a bank, an accordion file folder in an office, or at the very least, scattered amongst belongings at home. With the digitization of key documents, recordings, accounts and contact information, it’s now more important than ever to keep everything organized in one place and stored securely with your legal will and power of attorney documents. Whether you choose paper, a USB, an external hard drive or the cloud, the most important thing is the people you need to have access to it know where it is.
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