5 Things that can obliterate your RRSP before retirement…
Consider these risks when you are Saving for your Retirement
An RRSP is one of the easiest ways a Canadian can save for their retirement, and if started early enough in life, you can create an account that will compliment your retirement dreams into the future. But take care throughout your life, as there are many things that can happen throughout the years which will put your RRSP into jeopardy, and affect your income into retirement.
Here are the Top 5 RRSP risks we have seen in our Experience,
1. High Debt.
Most retirement plans will anticipate that you will have no debt and no mortgage into your retirement, but we are seeing more and more couples and retirees having debt for the 10 years before retirement, and even 10 years after retirement. If you are not careful, the cost of carrying this debt prior to retirement will negatively impact your ability to put as much into your retirement plan as you are able, and when you are servicing debt into retirement you are taking valuable dollars out of your budget that has been earmarked for your Income needs. When we talk with our clients we show them the difference between “Good” debt and “Bad” debt, and help them get their affairs under control years before their retirement date. Make a plan to eliminate debt long before your retirement years.
2. Optimistic Assumptions.
Many people aren’t saving enough, or have too high expectations for their retirement returns to grow their RRSP’s. Inherently you must become more conservative as you get closer to your retirement date. By not contributing enough throughout your working and savings years, you must rely on higher returns to drive the value of your account up, the problems generally though are higher risk comes with higher “potential” returns, and may not always work out for you as you enter into your retirement risk zone.
3. Long Term Illness or Accident.
Can you imagine what would happen not only to your short term needs but also your long term goals such as your retirement account if you were to become injured or have a major medical incident prior to your retirement years? It does not only affect your ability to earn an income throughout the event, but most times prevents us from contributing to our future goals, as we take care of immediate needs. A proper plan contain both Insurance and Investments to provide you with the safety net you need to plan and save for your retirement years. You can spend pennies on the dollar today to protect the most important part of your retirement plan, You…
4. High cost of children.
When we talk to a family who has the “million dollar family” with a boy and a girl and even more than two kids, we like to joke that the “million dollar family” phrase refers to how much it will cost to raise the family! Well not that bad, but a recent study pegged the cost of raising one child through adolescence, elementary school, post-secondary school and off to marriage is in excess of $256,000… So how many kids do you have, and what will be the costs that are out of your control? This is where some intelligent planning early in the child’s life, and the value of an RESP can help subsidize some part of your future obligations to your million dollar family…
5. Caring for Elderly Parents, and the Transfer of Wealth that never happens.
This we are seeing is becoming more and more common within our society. It has to do with a parent needing both financial and physical support into their older years. The high costs of having a child at home, as well as a parent at home requiring assistance, can put a tremendous amount of stress on a family’s ability to keep up financially with their plans. And the amount of money that has been anticipated to be transferred down from one generation to another is put in jeopardy if not planned for properly. There is a high cost to supporting a senior member of your family, and if not planned for appropriately the financial consequences can be devastating to your own retirement.
What Level of Service do You receive with your RRSP Account?
How many Canadians are relying on their RRSP to supplement their retirement goals.
How many Canadians contributed to their RRSP in 2012?
How many Canadians received Annual Reviews of their RRSP account with a Balance of $100,000 or less...
How many Canadians received Annual Reviews of their RRSP account with a Balance of $100,000 or more...
How many Canadians reached their retirement goals from 1990-2012 with the Help of an Advisor.
As you can see these are only a few things that can dramatically affect your ability to live a long, happy and healthy retirement, and if not planned for appropriately puts you at risk. There are even more things that can happen that have not been covered here, such as Divorce or Job Loss as you near your retirement years. So plan properly and be conservative with your assumptions, and most of all, review your retirement account with your Advisor on an annual basis.
This way your advisor can make minor or major changes to your investments to accommodate your true life events. If you are not having annual meetings with your advisor, then you are not fully taking advantage of the benefits of working with the advisor. An advisor should be your coach in your retirement goals and years, and if you feel that you are not being coached properly, take a moment to give us a call, and discover what Platinum Level Service is all about…
By Steffen deGraaf