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How to diversify your portfolio
What to do with investments at retirement?
Balancing RRSP between spouses
How to enter your home as an investment?

The Retirement Planner helps you assess your personal financial situation and guides you in the determination of the necessary steps to reach your retirement goals. The sooner you start planning and investing for retirement, the easier it is to build a good retirement capital because the compounded growth is free of tax.

Important Note:
This tool simulates retirement scenarios. Accuracy of results cannot be guaranteed. The calculations assume you are currently in a balanced financial situation, that is to say, you are working, have reasonable expenses, and enough RRSP contribution room (limit) to realize tax savings.

How to diversify your portfolio

It is important to diversify your portfolio into different levels of risk such as aggressive growth, balanced funds, and conservative investments. Your portfolio will better survive a stock market plunge, inflation, and bank interest rate changes through time.

An aggressive growth investment has a higher potential to give you a good return but the risk of losing your initial contribution is greater.

Balanced funds investments are typically mutual funds that combine growth and security.

Conservative investments are very steady and safe investments, but have the potential drawback of not growing according to the cost of living (inflation).

Always allocate your annual RRSP contribution, as a percentage of your salary, among the different investment strategies according to your age and level of tolerance towards risk.

Important note:
The simulation will automatically reduce any annual rate of return on investment to 5% once you reach retirement age. This reflects the decrease in your level of tolerance towards risk once you stop working and hence stop contributing to your retirement capital.

What to do with investments at retirement?

When you retire and stop working, you will no longer be contributing to your RRSPs. Protecting your retirement capital becomes critical as you cannot afford to loose everything at this point. You will need to move your risky investments into conservative investments.

By the year you turn 71, you have to choose one of the following options for your RRSPs:

• withdraw them all;

• transfer them to a RRIF (Registered Retirement Income Fund);

• use them to purchase a lifelong annuity or;

• use them to purchase an annuity spread over a certain number of years.

The most common option is to convert RRSPs into a RRIF. To do so, you do not have to move your investments into another account. The main difference between RRSPs and RRIFs is that you can no longer contribute to a plan, and you are subjected to minimum withdrawals.

Balancing RRSP between spouses

The retirement income chart estimates fixed-amount withdrawals between you and your spouse. It is important to assess beforehand if your and your spouse's RRSPs are evenly balanced in order to minimize the income tax impact for both parties. Consider contributing to a spousal RRSP. The higher income earner can reduce the tax bill right away while enabling the couple to benefit from splitting their income during retirement.

A spousal RRSP is one to which you contribute (and therefore benefit from the tax savings), but it is your spouse who is named as the beneficiary. When the time comes to withdraw from the spousal plan, the money is taxed as income for your spouse. This often has the effect of moving the family income to a lower tax bracket. The spousal RRSP is a good example of how income splitting can be a great tax saver. At retirement, when both spouses report the pension income from these RRSPs, the combined tax liability is lower and both are eligible for the $1,000 pension income deduction.

How to enter your home as an investment?

If you currently own a house that you plan to sell at retirement, it can also be considered as an investment. Enter the current value of your house at Step 2 just like any other investment. Set the contribution to zero, and set the return on investment (ROI) to 5.6%.

Over the past two and a half decades, the average annual increase in home resale prices has been 5.6% per annum. The percentage is an estimated average across Canada, but it varies according to which city and province you live in. Consult Statistics Canada's website for a more accurate percentage based on your province.

You should also consider increasing your lifestyle by 20-30% if you plan on moving into a smaller house, thus taking into account the additional financial burden of your new mortgage.

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