Should I invest in RRSP's or TFSA's - a discussion for all Canadian Savers

 

RRSP (Registered Retirement Savings Plan)or TFSA (Tax Free Savings Account)

Most people who want to save for retirement will have this argument with themselves over time, and "time" it seems is really the key to determining whether or not you should contribute to your RRSP or to your TFSA in any given year.


Firstly let me point out what should be obvious to our readers now.  These are not "Savings" accounts so much as they are "Investment" accounts.  Within both vehicles you can purchase most kinds of investments from stocks to bonds, mutual funds, ETF's and real estate in the form of REIT's

Some people believe that splitting savings between these two investing vehicles is a safe bet, but in many instances they would be wrong.

One unique aspect of the Canadian RRSP (similar to a 401(k) in the U.S.) and the TFSA (similar to a Roth IRA in the U.S.) is that there is a "limit" to the contributions you can make in any given year but that limit "carries over" to the following year should you fail to contribute.

This fact alone should tell you how to best invest your money at different points in your life and career.  For instance, when one is a young adult, say in your 20's, it is common that your income is much less than it will be later in your life, say in your 40's and 50's which are usually you "maximum" income years.

Knowing this, one simplified plan is to contribute as much as you can to your TSFA in those early years when your income is low, then, depending on your personal circumstances, gradually switch to the RRSP as your income increases later in life.

Why? Because it is better to reduce your tax burden on the higher income rather than the lower income, and the accumulation of contribution room over years, allows for a much larger RRSP deposit, thereby reducing your tax burden even further. Tuned in Canadians know that reducing your tax burden is a big part of retirement saving and planning.

If you were prudent and maxed out your TFSA during your 20's and into your 30's, "and" you invested well in that account ( It is really a tax free "investment" account, not just a savings account)
then you would have a considerable amount in your TSFA to tap into to ensure you max out your RRSP at the top end of your income earning years.

Here is a good primer on this very issue courtesy of  BNN.

Is the RRSP headed for retirement?

Samsung and Mybitat to Jointly Work on Technology Designed to Improve Ability of the Elderly to Live at Home Longer With Enhanced Quality of Life

SOURCE: Mybitat

April 28, 2015 05:00 ET

MENLO PARK, CA--(Marketwired - Apr 28, 2015) - Samsung Electronics Co., Ltd. and Mybitat (an AGT Group company) today announced plans for joint development of an innovative smart home solution aimed at helping the elderly remain in their own homes longer and enhancing individual quality of life.
Mybitat, a startup focused on "Internet of Things" (IoT) technologies along with Samsung's Strategy and Innovation Center (SSIC) based in Silicon Valley, will partner to develop technology that combines advanced sensors, cloud-based software and behavior analytics to monitor an individual's daily routine and wellness. The goal is to allow elderly individuals greater flexibility in determining their living environment.
Using Mybitat data fusion and big data analytics, along with new sensors and IoT Intelligence algorithms developed by Samsung, the jointly developed solution will recognize changes in behavior or health and alert remote caregivers if assistance is required. The companies plan to deliver technology that can improve an individual's quality of life as they age by allowing them to live at home securely and more independently. The solution is aimed at easily transforming a home habitat and tailoring it for aging baby boomers or their independent parents. Additional detail on the technology is not being made public at this time.
"Samsung believes the senior population can benefit from new technologies to improve their quality of life," said Curtis Sasaki, vice president Ecosystem Development, SSIC. "Our work with Mybitat has the potential to make key elements of the aging process significantly easier on individuals and families."
More than 10,000 baby boomers retire every day in the U.S.¹ As many as 90 percent of them wish to remain at home,² maintaining independence without burdening family or depending on retirement homecare providers. The two companies will initially test their smart home solution in the U.S. market.
"We believe current systems for managing aging require significant improvement," said Mati Kochavi, Mybitat founder. "We want to redefine these systems and offer affordable options that open up new possibilities for aging individuals. This collaboration with the Samsung Strategy and Innovation Center will help us to accelerate the day when more seniors can live their lives with improved health in familiar, comfortable surroundings."
SSIC is a global organization within Samsung's Device Solutions division focused on identifying and nurturing new technologies in health and wellness, cloud and data storage infrastructure, Internet of Things, augmented reality and other, related areas. Headquartered in Silicon Valley, with offices in Korea, Israel and the U.K., SSIC's mission is to develop and accelerate groundbreaking technologies through open innovation working in collaboration with entrepreneurs and strategic partners to enhance people's lives.
About Samsung Electronics Co., Ltd.
Samsung Electronics Co., Ltd. inspires the world and shapes the future with transformative ideas and technologies, redefining the worlds of TVs, smartphones, wearable devices, tablets, cameras, digital appliances, printers, medical equipment, network systems, and semiconductor and LED solutions. We are also leading in the Internet of Things space through, among others, our Smart Home and Digital Health initiatives. We employ 307,000 people across 84 countries with annual sales of US $196 billion. To discover more, please visit our official website at www.samsung.com and our official blog at global.samsungtomorrow.com.
About Mybitat
Mybitat, an IoT startup, provides a life changing solution for the senior habitat. Mybitat technology leverages the AGT analytics platform, contextualizing data, turning information into actionable knowledge and insights to revolutionize knowledge about aging. This is the first time the AGT platform will be used to tailor a solution for consumers, in their homes, after multiple successful projects in the Smart City space. Mybitat was recently funded by Moonscape ventures.
About AGT International
AGT International is a privately held multinational company headquartered in Zurich, Switzerland that specializes in the Internet of Things (IoT), including IoT analytics and applications, cloud solutions and professional services. AGT's solutions enable optimization of manufacturing operations, city management, traffic flow, hospital administration, and school connectivity.
1. Pew Research Center, Dec. 2010
2. AARP "Aging in Place: A State Survey of Livability Policies and Practices," Dec. 2011

Contact Information

Maryam Nabi
Onechocolate Communications
415-989-9803
agtus@onechocolatecomms.com

Target dated retirement funds are known as Retirefunds and should be part of your financial future.

If you were to ask a qualified investment adviser what is the best time to begin investing for your retirement, S/he would tell you it was 40 years ago. They would also suggest that, the second best time to begin is today!  Everyone who has ever been involved with the subject of saving for retirement knows how true this statement is. The longer your horizon is to the big day, and the earlier you start saving and investing, the more you will have in retirement.

Retirefunds or target dated retirement funds, set up with your retirement date in mind. If that date is 30 years out, then you are ahead of 98% of your peers in planning for the future.  If that date is only 10 years out, then you are in the middle of the pack so to speak, of your peers in planning for the big day. In other words, most people only think about their retirement and it's financial consequences as it gets closer.  Obviously, the sooner you take the plunge and begin your investment plan, the better off you will be in your golden years. If you are one of the Millennial generation (currently between the age of 18 and 34) you should be talking to a qualified investment adviser right now about "your" plan to retire in good financial health.

I have a nephew who just turned 20 and he recently approached me with some questions about how he should start an investment plan.  We talked briefly about registered retirement savings plans and tax free savings accounts but my main advice to him is to seek out a good financial planner and to make a Retirefund or target dated retirement fund, one of his main options. I wish I had been as in tune with finances at his age as he seems to be. While many of his peers are still looking for jobs, going to college or university etc, he already has some significant savings and is looking for solid advice in planning for a rainy day.

 Facts: 25 years of research shows that, "Individuals don't spend time doing any planning or thinking about retirement until it happens," (Salisbury)  In fact, most people spend much more time planning a vacation than planning for retirement.

I happen to be from the generation that was blessed with a pension plan I had paid into for 36 years,  It makes me more free to play with a portion of my portfolio.  If you are not part of a long term pension plan (and even if you are) you should not "play" with your retirement money.

Since this article is a "heads up" so to speak for the 18-34 yr old crowd, I will not get into boring details of individual funds or companies.  I will leave that to your qualified investment adviser.

Here are some resources to help you investigate Retirefunds, as you begin your journey to financial independence in retirement.

Familiarize yourself with the various funds then sit down with a qualified financial planner to discuss your Retirefund options.  Don't play the market. Leave that to the experts.

1. Target - Date Fund Definition | Investopedia

2. SEC.gov | Target Date Retirement Funds - U.S...

3. T. Rowe Price Target Date Funds - T. Rowe Price

4. Target date fund - Wikipedia, the free encyclopedia

5. Pick the Best Target- Date Fund for You- Kiplinger

6. American Funds 2020 Target Date Retirement Fund® (RECTX...

7. Fidelity Freedom Funds - Target Date Mutual Funds

    And if you are Canadian:

   1. Pick the Best Target- Date Fund for You- Kiplinger

   2. Vanguard Target Retirement Funds | Vanguard

   3. The future of target- date funds | Benefits Canada

      www.benefitscanada.com/...future-of-target-date-funds-58814

   4. Retirement- date funds: Smart no-brainer or investor...

      www.theglobeandmail.com  › …  › Adviser’s View

   5. Fidelity Freedom Funds - Target Date Mutual Funds

       

       

Target date retirement funds or retirefunds are growing in popularity

Target dated Retirement funds are known as Retirefunds. They are often set up to target a specific date which is usually the retirement date of the individual investor in question.

Examples of such funds can be found at BMO, Scotiabank, Manulife, T. Rowe Price, Pimco, American Funds, and many other banks and financial institutions too numerous to mention here.  These funds are the "cruise control" of mutual funds. As the investor gets closer to retirement, the fund's asset allocation becomes more conservative and focuses on fixed income. The changing asset allocation is called the glide path.

 "In the U.S., target-date funds hit the public consciousness after the Pension Protection Act of 2006. The legislation allowed 401(k) plan sponsors to make life cycle funds the default investments for participants who didn't choose their own funds. The logic was that since investors were now in charge of their own retirement funds, sitting in cash wasn't going to get them there".(See Nasdaq)

In Canada, target dated funds began gaining more interest around the same time. These funds have some very positive aspects which are desired by many investors.  Many individuals are so busy with their own careers, family and lives that they truly want their retirement funds on cruise control. Although I often point out you are the best keeper of your retirement plan and your money, many people either do not, or cannot look after their own plans.

There are however some drawbacks to these plans you should be aware of. The Canadian investment review has an excellent article on this very subject entitled: The trouble with retirement dated funds.

Retirefunds may not be for everyone but there is a growing investor base that wants to keep their investments on cruise control.  If you are interested in this form of retirement financing, you should contact a qualified financial adviser.

Ed