Is Your Life Changing? Your Savings Strategy Should Too!

To achieve the financial objectives you've set for retirement, you should always account for any personal or professional changes that may occur. Some can provide a real helping hand, but others might mean you'll have to rethink your savings strategy.

When Your Professional Life Takes a New Direction... Update Your Strategy!

No matter how carefully put together, a retirement savings plan should always remain flexible.

Changed jobs for a higher salary? Think about saving more for retirement. Lost your job? If you can't make ends meet and your RRSP contributions are automatically deducted, ask your financial institution to reduce your payments until you're back on track. Offered a private pension plan? Find out about the terms. You may also want to contribute to your spouse's RRSP to balance out your future retirement incomes. Have you considered a tax-free savings account (TFSA)? For more information, check out our capsule on TFSAs.

When Your Personal Life Takes a Turn... Update Your Strategy!

Anything is possible! Marriage, birth, divorce, a child's education (or back to school for you!), a new house, a move, a spouse's death... and the list goes on. Always keep an eye on your strategy. Some of life's changes can change your retirement goals.

For example, to plan for the high cost of a child's education down the road, start saving now with a registered education savings plan (RESP). You'll get a 20% government subsidy and a tax shelter on your savings. But first, do your homework or contact a financial advisor if necessary to make sure an RESP is right for you.

When the Economy Fluctuates... Update Your Strategy!

The low interest rates and stock market declines in 2002 and 2008 may have had a dramatic effect on your portfolio's performance. The 8% to 10% returns you used for your simulations may no longer apply to your savings objectives. If you haven't already done so, now's the time to recalculate using returns that more accurately represent current market conditions. Ask your financial planner for advice and adjust your investor profile as needed.

Easy Tactics That Pay Big

• Paying off your mortgage in a few months?
  
  Since your monthly payment is already in your budget, take the opportunity to set up a monthly savings plan and channel the extra cash into an investment like your RRSP! But first, be sure to consult your Notice of Assessment from the Canada Revenu Agency to check your contribution limit.
• Have unused RRSP contribution room?
  
  Maxing out your RRSPs pays off. The additional contributions you make today can be worth their weight in gold when you retire! Have you used all your RRSP deductions? The tax-free savings account (TFSA) could be of great interest to you. Read the capsule on the TFSA to find out more.

Financial institutions offer good rates on loans for buying RRSPs. To maximize your returns, the performance you expect from your RRSP should, of course, be higher than your loan rate.

If you're investing large amounts, it's usually better to invest systematically rather than in one lump sum. Regular investments are the best way to take advantage of the market, since you'll pay less when prices fall, and you'll be investing less when prices are high. If you invest all your savings at once, the market may be at its lowest—or it could be at its highest. When you spread your payments out over the year, the risks are reduced and your average purchase price is generally lower than if you invested your money all at once.

Simulate Your Retirement Income

To give you a glimpse of the future, the Régie des rentes du Québec (www.rrq.gouv.qc.ca/en/planification - CompuPension) and the Websites of most financial institutions offer effective simulation tools to help you calculate how much you have to save monthly or annually to reach your financial objectives for retirement.

4 Ways to Better Your Odds 

• Pay yourself first! Ask your financial institution to withdraw a set amount directly from your bank account on a weekly, biweekly, semimonthly, or monthly basis.
• Don't use your savings plan as a piggy bank! Only dip into your savings as a last resort. If you need to use your savings for a project or an unexpected expense, it will be to your advantage to use your unregistered savings or TFSA before you withdraw any amount from your RRSP.
• Review your savings plan regularly to make sure it's still in line with your objectives, especially if your personal or professional life has changed.
• When your investments mature, find out how you can reinvest them and consult a financial advisor if you need to. Don't leave a high balance in your account for too long. The interest on savings accounts is virtually nil.
  
  Interest rates on fixed-income securities are currently very low. If you have a high proportion of fixed-income products in your portfolio, keep a close eye on them and don't let them roll over automatically at low interest rates. A whole range of guaranteed investments with higher return potential is now available.
   
  Most financial institutions also offer products that you can redeem or reinvest. Consider these types of vehicles if rates are on the rise, since they give you the flexibility to reinvest at higher rates! Find out about the investment terms first.