Making the right investment decisions to fund your retirement can be a formidable task, but it doesn’t need to be.
It’s a tough call for any retiree focused on investment planning: Should you convert your registered retirement savings plan (RRSP) to an annuity once you reach the age of 71? Or would it be more beneficial to choose a registered retirement income fund (RRIF) or a life income fund (LIF)?
The short answer is it depends on your personal financial picture and desires, your risk tolerance, and how much flexibility you want accessing your funds.
Converting an RRSP is the easy part. The difficulty comes in deciding how to proceed. But take heart: you’re not alone if you find this topic confusing. Most people do.
The best way to choose the right option is to take a long-term view of your situation, work closely with a financial advisor, and determine a suitable plan that ensures your savings will last and provide you with what you need to live comfortably.
Another important point to remember: investment planning for retirement is not a “set-it-and-forget-it” proposition. You need to revisit your investment plan at least once every year to ensure you’re deriving the most value, and if necessary, make changes that will improve your returns.
Understanding What Your Options Are
Whether you choose an annuity, LIF, or RRIF, all three offer investment planning upsides and potential pitfalls. However, the argument for annuities isn’t a strong one presently. That’s because of the low-interest rate environment we’ve been in since the Great Recession gripped the world in the late 2000s. However, there are other factors that you must consider.
Let’s start with an overview of what the primary differences are between each one of these investment vehicles:
What If You Don’t Have an RRSP to Convert?
Not everyone has an RRSP, and not everyone needs one. For some people, they avoid investing in an RRSP for the same reason many people are steering clear of purchasing an annuity: the interest rate is too low to make it worth their while. Others, such as people with low marginal tax rates, may find using a tax-free savings account (TFSA) to be of greater benefit. Simply put, the lower your tax rate is, the lower the tax savings you will realize.
There is no one-size-fits-all investment planning blueprint for retirement. Even if you feel you’re late to the retirement savings game, to make an informed decision on how you should proceed with your retirement plan requires honest reflection and contemplation on what you can realistically achieve, and a trustworthy and experienced partner to advise you.
Are you seeking an experienced financial advisor to help you and your business succeed? Talk to one of our professional, certified insurance and investment advisors. We have the expertise to help. Call us toll-free at 1-800-595-2150.
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J.R. Genua is the founder of Centre Square Solutions.