Shaun Paul Brockley asked Scotiabank Retirement expert Bev Moir if he should use his RRSP to pay off his credit card debt before getting a mortgage. Watch Bev’s response, and post your own retirement planning questions here on our Wall. One more day to get Bev’s response to your question ….
Bev Moir Answers Questions about Retirement on Facebook

In the second video of our series, Scotiabank Retirement Expert Bev Moir answered a question from Chris Gillis on how one can determine the right mix of savings – between TFSA, RRSP, an employer pension – also factoring in OAS and CPP. Watch Bev’s response and post your retirement planning questions here on our Wall. Bev will be responding to your questions all week.

Determining the right mix of savings between TFSA, RRSP, and employer pension

With the RRSP contribution deadline approaching on Monday March 2, it’s important not to miss the opportunity of contributing to save taxes on your 2008 income filing. If you don’t have the cash to contribute, consider taking out an RRSP loan. Rates are low and if you expect a refund, you can use it to substantially reduce the loan amount. If no cash, consider an “in kind” contribution of securities or investments held outside of a registered account. Their market value at the time of contribution to the RRSP equals your RRSP contribution amount. Lastly, there’s always the bank of Mom and Dad for young people!

Just make the contribution and worry about how to invest it later in the month. Many think they need to make an investment decision right away, rather than parking the contribution into a cash savings vehicle until they have the time to make a thoughtful and planned investment decision based on a financial plan.

No financial plan? Now’s a good time to take make financial planning more of a priority. Don’t get caught next year – make an appointment with a financial advisor as soon as possible and get on a reasoned path towards meeting your financial goals.

Investors are scared and discouraged as they head into 2009. The rapid economic downturn experienced in 2008 combined with very dismal market returns has left many wishing they had saved more and had retreated from the capital markets in 2008. With the start of a new year, investors get another opportunity to re-evaluate their investment goals, their investment time frame, and their risk tolerance/return profile.

If an individual is close to retirement and needs to draw income from their investments, the lesson learned from 2008 is the need to have more fixed income and income -producing investments. An asset allocation of two-thirds fixed income and 1/3 equity will reduce portfolio volatility, will help to preserve capital, will provide an income stream, and will continue to provide some portfolio growth potential from the equity portion of the portfolio.

If an investor is young and many years away from needing to draw income from his/her retirement savings, then the current market situation should be viewed as an opportunity to buy growth-oriented investments (i.e., equities) at historic lows. Those investors who are midway to retirement should consider investing in a diversified, balanced portfolio that holds fixed income for stability and equities for growth. The balance between fixed income and equities should reflect their unique risk tolerance.

Currently the market is providing investment opportunities for all of these investors. There are attractive quality corporate bonds that are paying high yields at historically large spreads above government bonds. Additionally, there are good quality companies trading at historic lows that offer high dividend yields and the potential for improvement in their stock prices in time.

In these uncertain times, there is a tendency to avoid making an RRSP contribution. My belief is that the markets are providing a unique opportunity. Investors should speak to their advisor to determine the most appropriate strategy. If uncertain, please be in touch for a complementary “second opinion.”

Some employers support their employees’ retirement savings by matching the employee’s RRSP contributions to an RRSP of their choice or to a company-sponsored group registered savings plan. Usually this benefit is voluntary and companies usually match a portion of their employees’ savings. For example, if an employee contributes $1.00, the employer will match by $0.50 up to a certain percentage or dollar amount of the employee’s salary.

An employer-sponsored RRSP is a helpful benefit and one that employees should use to their advantage. It helps to encourage the savings habit, often contributions can be made by payroll so that tax may be reduced at source, and employers can establish group RRSP plans for their employees at preferential rates and terms.

If you don’t know if your company offers this, check with the HR Department for information about the plan and for the enrollment forms.

Perhaps this year more than previously, people saving for their retirement may be thinking of not making a contribution. Last year’s poor equity market returns heightened investors’ fear and, many investors are concerned about earning sufficient income this year or worried about their job security to feel comfortable maximizing their RRSPs.

Clearly one’s personal situation in the face of these economic conditions will determine if a contribution is made or not. However, even making a partial allowable RRSP contribution is better than no contribution. You’ll need those retirement savings during your non-working retirement years so here are some tips for finding the money for a RRSP contribution:

• Set up an automatic monthly contribution from your bank account directly into your RRSP. You can start with a small amount and increase it as your situation improves.
• Speak with your employer about setting up an automatic payroll contribution to a company-sponsored RRSP. By doing this, your employer can reduce the amount of income tax withheld so the impact on your pay cheque is lessened. You may also find that your employer will match some or all of your contribution.
• You don’t have to have access to a payroll contribution through an employer-sponsored RRSP to have income tax deducted at source. If you regularly contribute to a RRSP, apply to CRA to have the withholding tax deductions reduced by your employer. Write to the Chief of Source Deductions at your local taxation office, giving estimated taxable income, Employer’s name and address, and a copy of the PAC plan contract.
• If you have a self-directed RRSP, unlike other types of RRSPs, there are a wide range of eligible investment choices available. Self-directed investors may hold any combination of qualifying bonds, GICs, mutual funds, coupons, common and preferred shares, and foreign investments. If an investor does not have cash available to contribute, he or she may make a “non-cash” contribution instead. A “non-cash” contribution is an investment of a qualifying security that is already owned by the contributor and that is deposited into the self-directed RRSP without being cashed in or redeemed. The value of the RRSP contribution receipt equals the market value of the security when it is deposited to the RRSP.
• In these uncertain economic times, frugality and the purchase of less “stuff” is being more valued. If you have a birthday or other significant personal event where family want to buy you gifts, this may be the perfect time to ask for cash that can be used to contribute to your long-term retirement savings plan.
• Consider borrowing to contribute to your RRSP, especially if the loan can be repaid quickly and the contribution generates a tax refund.

Who can contribute to an RRSP?
Anyone who has earned income can contribute to an RRSP up until the year they turn 71.

Contributions made in the first 60 days of 2009 can be applied against either your 2008 or your 2009 income taxes. This year, the 60th day falls on March 2, 2009.

How much can you contribute?
The contribution limit for 2008 is $20,000 and for 2009 it’s $21,000.

For the 2008 tax year, take the lesser of 18% of income earned in 2007 or the maximum limit of $20,000 less the PA in 2007 if a member of a pension plan (or Past Service Pension Adjustment in 2008) less unused contribution room accumulated after 1990 plus any Pension Adjustment Reversal from 2008.

If this is confusing, you can check your RRSP contribution limit on the Notice of Assessment that the Canada Revenue Agency sent you after processing your 2007 tax return. Your RRSP contribution limit is noted there, including any unused room.

Still unsure? The Tax Information Phone Systems (TIPS) will also give your current contribution limit – Toll Free Number 1-800-267-6999. You must have your SIN and your previous year’s tax return handy.

Alternatively, go to the “My Account” online service (available at www.cra.gc.ca/myaccount) to check their RRSP deduction limit for 2008. “My Account” lets you get personalized information about your RRSP contributions and deduction limits as well as information about payments, installments, outstanding balances, statements of accounts and much more.

Today’s investors are more knowledgeable and more aware than ever before of their financial needs, their choices, and the consequences of their investment decisions. Retirement planning has become a growing concern for Canadian baby-boomers, especially after the challenging investment year we experienced in 2008.

Many realize that by the time they reach retirement, there will be a slim chance that the government pension income that they expect to receive will be sufficient to maintain the standard of living that they envision for their golden years. The two mainstays of government pension income – CPP and OAS – were designed to replace only about 15% of pre-retirement income. And, given that about 35% of Ontario workers are covered by an occupational pension plan, it’s easy to see why investors understand and acknowledge the importance their personal retirement savings plans will play, over and above government and employer pension plans.

As investors realize that they will ultimately be accountable for their own financial security, many faithfully contribute to their RRSPs each year and seek the advice of an investment advisor in designing a self-directed RRSP to fit their personal circumstances, goals and objectives.

If you are age 71 this year, you are required to collapse your RRSP by December 31st and either transfer your funds to a RRIF or purchase an annuity. If opening a RRIF, you cannot make further RRSP contributions into it. What if you have employment income in 2008 and therefore qualify for an RRSP contribution in 2009?

To get around this problem, you have one last chance to make an RRSP contribution. Rather than waiting until the new year, make your “final” RRSP contribution into your RRSP before year-end (December 31st). By doing this, you may have over-contributed for the 2008 income tax year and the CRA will charge a penalty of 1% per month on the over contribution amount. However, as the contribution is made during the month of December, only one month’s penalty is charged, a small amount compared to the tax savings of making the final RRSP contribution to reduce your taxable income.

Starting January 1, 2009, you will no longer be subject to the over contribution penalty and you will have made a RRSP contribution while you still have an RRSP to allow you to take advantage of one more year’s contributions.