Saving for retirement is an important part of your overall financial plan. A registered retirement savings plan is a great way to help you save for retirement. You can learn more about Sun Life’s RRSP options here. If you’ve made your RRSP contribution this year, you may be wondering what to do next.
Here are 5 things you can do after you’ve made your RRSP contribution:
1. Put your money into a low-interest account, until you decide where you want it to go.
You may not want to decide right away which investments you want in your RRSP. In that case, consider a money market fund. It’s a low-risk investment, meaning you likely won’t lose any value when stock market values go down.
These kinds of funds focus on providing safety and protect your initial investment, with some potential income. It’s a conservative, shorter-term investment.
2. Find investments with more potential for growth.
How comfortable are you with the risk involved with investments? Different types of investments have different levels of risk:
- Lower-risk investments: Cash equivalents, such as money market funds, provide low-risk returns. They often include investments such as guaranteed funds and short-term deposits that pay you interest. The risk is low, but many cash equivalents also have low rates of return.
- Medium-risk investments: Fixed-income investments, such as bonds, are generally higher risk than cash equivalents. But they potentially offer higher returns.
- Higher-risk investments: Equity funds are made up of stocks. They’re usually riskier than cash equivalents or fixed-income investments. But with higher risk comes a higher potential for long-term growth.
Not sure which level of risk to go for? Take Sun Life’s questionnaire to help you figure out what kind of investor you are. Talking to an advisor can also help you figure this out.
3. Name a beneficiary for your RRSP.
When you open an RRSP, you’ll name a beneficiary or successor holder. What’s the difference? A beneficiary gets the money, while a successor holder gets the plan. Only a spouse or common-law partner can be a successor holder.
Having a beneficiary establishes who will get your RRSP funds after you die. For example, they can choose to move the money from your plan into their own, provided they have enough contribution room. Or they can choose to withdraw money from the plan and pay taxes on it.
You can name anyone you wish as your beneficiary-people often name their spouse or children as their beneficiaries. Appointing a beneficiary means the proceeds go directly to them rather than through your estate. If it goes through your estate, your family could receive less money.
4. Make regular contributions before the RRSP deadline.
Consider contributing to your RRSP each month. You can ask your employer if they can adjust the amount they have to withhold from your income for the Canada Revenue Agency (CRA). Since you’ll be able to deduct the amount you contribute to your RRSP, you’ll owe less income tax. Also, the CRA won’t need to take as much from you throughout the year.
Compared with making a lump sum RRSP contribution, this strategy won’t increase your deduction or save any more in taxes. And your employer may not be able to reduce the withholding tax, in all cases. But what if your withholding tax amount does go down? You’ll have an easier time making your monthly RRSP contributions, because your obligations to the CRA will be that much lower.
5. Create a financial plan that includes your retirement goals.
When you create a financial plan, you look at the big picture. This plan includes your short-, medium-, and long-term goals. Retirement is a crucial part of that long-term picture. Answering the following questions will help you make your RRSP work for you:
- How much do you want to invest in your RRSP each week, month and year? That will depend on how much income you’ll need to retire comfortably.
- Which products will you include in your RRSP?
- Have you considered how other income sources will help you in retirement? For example:
- the Canada Pension Plan (CPP)/Quebec Pension Plan (QPP),
- Old Age Security (OAS),
- other registered plans, such as the tax-free savings account (TFSA), Lifetime Income Fund (LIF), Registered Retirement Income Fund (RRIF),
- group pension plans.
A plan can help point you in the right direction and make good financial decisions. You’ll be able to review your plan to make changes, when things change in your life.
Finally, it’s a good idea to get some advice. Building a customized plan and talking with a Sun Life advisor can help you maximize your estate. It’s an important step in leaving a legacy for your loved ones. If needed, a financial advisor will recommend you speak with a tax or legal advisor.
You’ve made contributions to your RRSP a priority. That’s good planning. Now take the next steps. Consider putting your money into either a low-interest account or investments that match your comfort with risk. If you haven't already, name a beneficiary for your RRSP. Think about making regular contributions to your RRSP, rather than one lump sum per year. And make sure you have a plan that covers all your finances.
- How to make the most of your RRSP contributions
- 5 RRSP mistakes and how to avoid them
- Retirement Savings Calculator : See how much you need to retire.