CONSUMERWATCH: Saving for retirement
Published Monday, February 20, 2012 7:40PM CST
Saving for retirement is important to Sham Ali, owner of Finales Coffeeshop in St. Boniface.
"I can't depend on a pension from a company so I have to put aside money as much as I possibly can," says Ali.
Ali says he decided to put money into RRSPs even though there are other options out there.
He says he looked into a Tax Free Savings Account (TFSA), but didn't know enough about it.
Retirement is far from Elizabeth Dyck's mind, so she says a TFSA is perfect for her needs.
"I'm kind of saving up for a house," says Dyck.
Financial planners say RRSPs aren't for everyone.
"If your income is less than $30,000 a year, then yes the tax free savings is the best for those people," says Doug Nelson of Nelson Financial Consultants.
RRSPs can hold everything from GICs to stocks and mutual funds. You also get a tax refund based on how much you put in. However, withdrawals at retirement are taxed.
"So long as you are paying a higher marginal tax rate today while you're working if you marginal tax rate is going to be lower in retirement, it's always better to put as much as you can into the RRSP," says Nelson.
With a TFSA, there is no refund, but you don't pay any tax when you take your money out.
There is also a $5,000 limit on deposits each year.
Nelson suggests using a TFSA to store money if you've put too much into your RRSPs. He says it's also great for saving up for a down payment.
If you invest in RRSPs, Nelson says to maximize growth you should resist the temptation to spend that tax return and reinvest it into your RRSPs.
He also recommends getting a top up loan to maximize your contributions, as long as the return equals the loan so it can be paid off soon.