Investments
How to get the most from your savings
Saving for the future is the cornerstone of financial planning but it can be trickier to get to grips with than it seems. There are a wealth of different types of product on the market to choose from but the first step starts with identifying what your personal reasons for saving are. We all have a different purpose or objective, be it saving for a house, your child’s future education, or even for your retirement and we will be able to support you in choosing the most appropriate savings option for your own situation.
With this in mind, let’s take a look at some of the more common products available:
Products with guaranteed interest
This option is best suited to those who prefer a lower level of risk, as it offers the protection of your original investment with the opportunity to earn interest at a predetermined, albeit probably lower, rate. These products have the benefit of offering you peace of mind and security from market fluctuations that may diminish the amount of your original investment.
Many factors will influence your return, including the interest rate itself, the amount of your investment, length of the term, etc.
Segregated funds
Segregated funds are market-based but offer additional benefits due to the fact that they are insurance contracts. These products are ideal for those looking to invest in the longer term as they are subject to fluctuations in the market which can vary, sometimes losing value in the short term but potentially offering higher returns in the long term than products with guaranteed interest payments.
A big plus of this time of investment is the fact that your savings will be protected and you will be guaranteed to receive between 75% and 100% of your initial investment, less withdrawals, back upon the maturation of your contract or in the event of your death. Some segregated funds also offer an income that is guaranteed for life.
Annuities
An annuity is simply a contract with a life insurance company where you pay a lump sum of money at the start of the term and, in return, the life insurance company guarantees to pay you a set income, in regular installments for an agreed period of time.
Tax-advantaged savings plans
There are a couple of common plans, as follows:
- Registered Retirement Savings Plan (RRSP) is personal savings account that benefits from tax-deferred growth meaning any money you contribute will be exempt from tax the year you deposit. You are taxed upon withdrawal from your RRSP.
- Tax-Free Savings Account (TFSA) provides the opportunity to save for the future, without paying tax on any growth.
- Registered Education Savings Plan (RESP) is an investment account geared towards saving for a child’s education. The investments inside the account can grow tax free and the big benefit though is that the government will pay a grant into the RESP.
- Registered Disability Savings Plan (RDSP) is a savings plan that is intended to help parents and others save for the financial security of a person who is eligible for the disability tax credit. The government will also pay a grant to the RDSP.
- A Registered Retirement Income Fund (RRIF) is opened when you transfer money from an existing RRSP. It is a type of savings account that has the advantage of providing you with a consistent and regular source of income in your retirement.
- A Life Income Fund (LIF) is a retirement income plan, with annual minimum and maximum withdrawal amounts. The owner of the LIF is able to directly manage the investments within the fund, giving them more control over their money. Essentially, a LIF offers similar terms to an RRIF but instead uses your pension money which is locked in. At the age of 80, the owner of the LIF must switch the plan to a life annuity.
Talk to us, we can help you with what makes the most financial sense for your situation.
