Manage your retirement savings for 40 years

In your mid-twenties, retirement may seem like a long way off, but starting to use your RRSP now to build up a necessary financial reserve can be very profitable. Of course, you will have to save money, but proper use of this tool can help maximize the fruits of your efforts.

It is certainly not easy to establish an investment strategy for a period of 40 years. “Knowing which investments should be favored at each stage is a good question, but one that too often gets the wrong answer,” explains Daniel Lanteigne, Senior Partner, Reverser Financial Strategies.

So many things happen in economic evolution. The good investments of tomorrow will not necessarily be the same as today. Fashions also change in investment.

From the outset, the experts will tell you that you will have to invest during all this time according to your objectives and your investor profile, a profile which is based above all on your risk tolerance. “It is therefore important to first validate this profile with an advisor,” says Ravy Pung, financial planner at the National Bank.

Learning risk tolerance

This profile will tell you which stocks should make up your portfolio, but the process doesn’t stop there, according to Daniel Lanteigne.

Starting from the idea that life expectancy is very likely to be greater, if not much greater, in 40 years than it is today, it is not at all certain that the money accumulated over 40 years will be enough to cover the cost of living for another 30 years, maybe more, if you haven’t grown it enough.

So should you run more risk than your tolerance indicates? “Loss aversion is generally innate,” says Daniel Lanteigne. This leads many people to want to avoid risk.

“Using a time-based approach to establish liquidity needs to cover the cost of living in the short, medium and long term, the saver will be able to determine the percentage of his capital that will not have to be invested in investment vehicles guaranteed and secure, thus ensuring a higher return,” he says.

Optimize tax savings

It is well known that if the RRSP is such an interesting savings tool, it is because the contributions are deductible from income, which provides attractive tax savings. But what is important to know is that the contributions do not necessarily have to be used as a deduction for the year in which they were made. “You have to contribute as soon as possible and every year, but there is no date to use the deduction”, explains Ravy Pung.

Young people whose income is still low will often benefit from postponing the use of the deduction until their income, and therefore their tax rate, is higher, adds Daniel Lanteigne.

If it is important to start contributing to an RRSP as soon as possible, it is also because the income generated by the investments will be sheltered from tax even if the deduction has not been used. until they are disbursed.

If you have 40 years ahead of you to build your wealth, two rules are essential. First, start contributing to your RRSP every year now; To achieve this more easily, nothing better than a systematic savings plan. And then make sure to optimize the use of tax deductions, says Ravy Pung.