Poor planning could affect your lifestyle later in life. These ideas can bolster your RRSP savings
of the 64-year-old man from Gumperda, Germany, who was arrested after drilling a hole through a neighbour’s wall in their duplex home. Turns out the man had spent two days trapped in his own basement after laying bricks to block an entrance but forgot to leave himself a way to get out. Oops. He didn’t plan that very well.
When it comes to RRSPs, bad planning is not likely to get you arrested, but could affect your lifestyle later. Consider these ideas to improve the outlook for your RRSP savings.If you assume that you’ll earn, say, 7 per cent on your portfolio each year, you might think you’ll be able to withdraw 7 per cent annually in retirement. Not so fast. No portfolio grows in a straight line.
If you want $60,000 annually in retirement, and assume a 4-per cent withdrawal rate, you’ll need $1.5 million in your RRSP on your retirement date if you don’t want to dip into your original capital. But this ignores inflation and that you’ll need to withdraw more than $60,000 annually as the years go by to maintain the same standard of living. One simplistic, back-of-the-napkin approach is to multiply your desired annual income by 30. In this example, $60,000 times 30 would be $1.
As a general rule, it makes sense to hold interest-bearing investments in your RRSP to the extent possible since interest is highly taxed, and a registered plan shelters this income from tax. What about equities, or growth assets? If you still have room in your RRSP after fully building out the fixed-income portion of your portfolio, then go ahead and hold equities in your plan as well.
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