It’s never too early to start thinking about your retirement and the steps you need to take now to get to where you want to be.
Whether you’re considering opening RRSPs or planning a budget around your work pension or other income. Let us help you by pointing out some of the options available that will help you get the most out of your money later in life.
I need to know my options
Your income during retirement will come from three sources:
The Canadian Pension Plan (CPP) is a retirement plan that you contribute to throughout your working life that provides a monthly benefit to you once you retire. The standard retirement age to qualify for the CPP is 65, but you can choose to retire at 60 and take a reduced CPP. The Old Age Security Pension is a non-work related benefit paid monthly to eligible Canadians who retire at the age of 65.
Your employer might offer retirement pension plans that you contribute to throughout your employment. Some have a standard contribution requirement (ie. 5%) and some might have a match program where the employer matches your contributions. Depending on your retirement age and how you invest your pension funds, you can budget (we recommend conservatively) where your pension balance will be at retirement.
Savings / Investments
The rest of your retirement income will come from your RRSPs, TFSA, and other non-registered savings and investments that you’ve made (high interest savings account, GICs, etc). Depending on the product, you will have some flexibility in how much and how often you can draw funds from these sources.
If, after reviewing your sources of income, you feel you will not have enough income to live on during retirement, you will want to consider increasing your savings (RRSP contributions or work pension), delaying your retirement (each year of delay to retirement will increase your CPP benefit), or consider that you may want to work part-time during retirement.
The best thing you can do is plan for your future now. Taking the steps today to ensure you are financially prepared tomorrow will allow you to retire with the peace of mind you need and the ability to maintain the lifestyle that you want.
I need to open a TFSA
Tax-Free Savings Account (TFSA)
The TFSA is a flexible registered plan that allows you to save for short or long term goals. Introduced in 2009, TFSA’s offer a unique way of savings up to a specified amount each year determined by the Government of Canada. These accounts are tax sheltered, have a competitive interest rate, and allow you to withdraw your money at any time without penalty.
Earnings for tax sheltered
Contributions are not tax deductible
Withdrawal of contribution is not taxable
Unused contribution room will accumulate each year (ie. if you don’t contribute the maximum each year, unused contribution room will always carry forward to the following year)
Withdrawal of contributions increases the contribution room for future years (ie. if you withdraw $500.00 from your TFSA this year, you have an extra $500.00 in contribution room the following year)
2009 – 2012: $5,000
2013 – 2014: $5,500
2016 – 2017: $5,500
2019 – 2022: $6,000
We recommend tracking your contribution room each year with your notice of assessment from the CRA.
Contributions over the Limit
At any time in the year, if you contribute more than your allowable TFSA contribution room, you will be considered to be over-contributing to your TFSA and you will be subject to a tax equal to 1% of the highest excess TFSA amount in the month, for each month you are in an excess contribution position.
*Note that it is the responsibility of the TFSA holder to ensure they do not exceed the annual maximum contribution limit.
If you know you will not need immediate access to your funds, you can also take advantage of our TFSA GICs with flexible term options of 1 to 5 years. With this product your funds remain tax sheltered while you earn a premium rate of interest. Note that funds invested in TFSA GICs cannot be withdrawn before the maturity date.
It may seem early, but now is the perfect time to start long term savings. An RRSP is a government approved plan through which you save money for your retirement. Contributions made to an RRSP, within limits, are tax deductible and the income you earn is tax sheltered. Momentum offers three different types of registered retirement savings plans depending on your investment goals.
Savings Account RRSPs
Variable rate of interest
No minimum deposit amount required
Contributions can be made through recurring transfers or payroll deductions
Fixed Term RRSPs
Guaranteed principle and interest
1–5 year terms
Registered Step-up GIC
Guaranteed principle and interest
5 year term with annual rate increases to protect you from inflation
Anyone with “earned income” subject to Canadian taxation may contribute to an RRSP. Even if you are not taxable, you should file a tax return to report your earned income and create RRSP deduction room. You can also make part of all of any contribution to a plan in your spouse’s or common-law partner’s name. You, as the contributor, are still entitled to the tax deduction.
Effect on Income Tax
After your RRSP contribution has been processed by the credit union, you will receive an official receipt. This must be filed with your tax return for that year.
Your Notice of Assessment from CRA, received after filing your return, will state your RRSP deduction limit (the maximum amount that you are allowed to invest into an RRSP) for the following year.
The savings account designed for long term savings. This account is service-charge free providing you manage your money online or through telephone banking. A convenient way to save while earning more with a premium rate of interest!
An ideal way to stay consistent with your savings. Set up a recurring automatic transfer to your High Interest Savings account.
Personal Account Package
Take some time to review our personal account packages to make sure you’re not paying more in fees than you should! Click here to see our account package options.
I need to create a budget
Having a budget to follow on a monthly or weekly basis is vital to ensuring you aren’t living beyond your means and it will especially help you stay committed to your plans to save for retirement.
Here are a few ideas to help with your budgeting and saving plans:
Set yourself goals
Having an idea of the direction you’re going is an important part of the budgeting process (ie. do you have a retirement savings goal?)
Choose more than one investment vehicle. Whether it’s RRSPs, GICs, a TFSA, or mutual funds, you can benefit in different ways from having a diverse portfolio.
Start small, think big
Commit to your savings by starting with a small amount like $25 or $50 per pay or pick a percentage of your total take home pay like 5% or 10% that you can stick to. If you can do more, even better! You will be surprised at how quickly these small amounts will add up. Then review your savings and other investment contributions every year and see if you have room in your budget to increase them.
Manage your debt
Whether it’s a credit card, loan or mortgage, make sure you are on time with your payments. If you can afford to make extra payments without leaving yourself short, go for it! The quicker you can get rid of your debt, the more money you will be able to invest. If you are working on paying down your debt, remember to always start with the debts that have the highest interest rates.
Participate in work pension or RRSP plans
If your employer offers an optional retirement plan, make sure you sign up. This is a benefit you should take advantage of as young as possible so you can make the most out of your savings over a longer period of time. You may also have different options to invest your pension funds.
Avoid carrying credit card balances
If possible, consider a line of credit in place of a high interest credit card. If you choose to have one, pay off the balance each month so you can avoid unnecessary charges that eat away at your budget.
Contact one of our branches today to make an appointment to discuss your retirement investment options.