Investing for retirement in Canada - advice please

[TylerM4]

Yes, I will talk to a professional. But before I do that, I want to build up decent amount of cash so that I go to the advisor/planner with some money to actually invest. I'd like to build up $50k then bring that 50k to a pro and invest that money along with creating a solid plan.

So here's my situation. I'm a middle age male, married, with 2 young children. Wife isn't working as with her income it doesn't make sense to pay for daycare for 2 kids as the daycare would cost almost as much as what she earns after you figure in commuting costs, etc. I have what most people would call "a good job" we're not raking it in, but aren't scraping by either.

Unfortunately, we have very little saved for retirement. I have a pension plan through my work that I've been paying into for over a decade now, and about $15k in registered savings. That's it. This was by design. I figure it's silly to invest money while you are also paying interest on money borrowed. As a result of that mindset, we've put almost all of our spare income into paying down our mortgage. We took that seriously as the mortgage will be paid off in a few months.

The plan now is to take that same amount that we had been paying into the mortgage and put it toward retirement savings. Perhaps also some education savings for the kids, but in all honesty their RESP's are in good shape as our family has been very generous in that regard.

So yeah. Here we are - middle aged people with 2 young children. No debt :) but also no savings :(

I will soon have approx. $1500/month to put toward retirement savings. Aside from Tax free savings accounts, what is the best thing to do with this money for the next 3 years or so until I'm ready to approach a pro? Or maybe this isn't as complicated as I believe and I can do some research and figure it out for myself?

[TylerM4]

Hmmm. Ment to post this in Canada discussion. Not sure if I messed it up or a mod moved it.

[slootman]

I'm not sure many financial advisors would turn you away just because you didn't get have a big bank account. With 1500/mo to contribute that's a decent chunk every year, and could be the foundation of your long term plan. It may be worth talking to a few just to feel them out - you may like what one has to say and not have to worry about finding a pro down the road.

Onto your question:
RRSPs are good. The immediate tax benefit is attractive. They can be opened like any other account, and there are many options of what to do with the money once in the account. You can do any combination of stocks, mutual funds, ETFs, even high interest savings, etc etc. Depends on your comfort level.

It may be simplest to just go to your bank and get an RRSP set up and put the money into mutual funds for the time being. If you're daring the stock market can be fun, but there's alot of risk especially for amateurs. Mutual funds carry management fees, but if you don't have an appetite or stomach for the stock market ups and downs the fees can be worth it. Most don't require a minimum contribution.

Disclaimer: I'm not a financial advisor :)

[Hassel99]

I am not a financial advisor, my comments should not be considered advice.

There is no reason to wait on your investments. Google "dollar cost averaging" its a great way to eliminate some of the risk of the market with a slower consistent approach. If you save up the $50k to start most brokers will hold the majority of cash and slowly inject it into the market anyway to avoid a shock loss. Its better (safer) to invest $1000 a month then $12k at one time.

Good luck!

[flamingfingers]

Make SURE you are aware of the 'management fees' associated with GICs, mutual funds. Interest rates on RRSPs are low...very low. I am making more in interest just on a super savings account than I did on a 2-year GIC. I would invest some bucks into physical gold as the price now is attractive and it looks like it has pretty well bottomed. If you have an accountant, he can give you some decent advice and at least what tax advantages certain investments can provide. Take your time. It has to make sense to you.

[Captain Awesome]

I wouldn't wait till you hzve that 50k in cash and start investing right away . A good fee-only advisor will get you started even if you decide to invest $100 /month. Stay away from mutual funds salespeople calling themselves financial advisors. Also, educate yourself as much as you can about investing and personal finance so you can spot crazy ideas, scams, and sharlatans a mile away.

Good for you on thinking about the future.

[Bsuds]

Check this out and apparently the show is on tonight.

http://www.cbc.ca/news/business/hidden- ... -1.2553560

[cutter7]

I think you are on the right track, I also agree with the posters who say don't wait to have 50g start investing asap.

Consider maxing out the tax free savings both yours and your spouse. personally I contribute to the tax free savings before rrsps

you will save tax on rrsps now but they can hurt you in the long run. too much income when you are old and the government will reduce your old age pension. ( I have a family member who had his reduced and I have another who lost it completely)

plus if you ever want to help your kids you can take the money out of your tax free account at any time without tax implications

[TylerM4]

Awesome. Thanks for all of the advice.

Sounds like its pretty unanimous that I should start investing now instead of just gathering for investment.

Cutter, I have the same opinion about RRSPs - If you invest your money well and have a decent income during retirement then RRSPs can become a bad investment. It's possible to end up withdrawing them while you are paying into a higher tax bracket than what you were paying into when you invested in them. They pay crap for interest so the big value is in the tax savings but only if you realize those savings.

[logicalview]

as other posters have said, I am not a professional advisor, so this isn't "advice" per say.

That said, I wanted to let you know about DRIP's - dividend reinvestment plans - your broker and/or financial advisor will not want you to know about these vehicles as they won't earn any commission on them. Most of the large blue chip companies offer this service - you buy 1 share, or 10 shares, from a broker, then have them issue you the share certificate - costs $50 at most firms to do this. Then once you have the share cert in your name, you can register for the company's DRIP plan, and now you can invest directly in that company on a quarterly basis with no brokerage fees, and your dividends reinvest automatically. They make great savings vehicles. All the banks offer this service, as do the big guys like Enbridge and TransCanada. Brokers won't tell you about them as I said as there is no incentive for them, they get no commission if you buy your shares directly from the company.

I just set up a DRIP for my niece with the company Exchange Income Corporation, she's only six, but now the whole family can chip in with $100 minimum investment and buy shares - you just mail off a cheque to the transfer agent with a form that you can get online. In twelve years she should have a nice nest egg for school as the dividends keep piling in and reinvesting.

http://www.dripprimer.ca/

[Captain Awesome]

Interest rates on RRSPs are low...very low.

RRSP isn't an investment really, just a tax arrangement. It's what you put inside your RRSP defines your return. If it's high interest account it will be low, if it's stock it will be higher - and so on.

[cutter7]

as other posters have said, I am not a professional advisor, so this isn't "advice" per say.

That said, I wanted to let you know about DRIP's - dividend reinvestment plans - your broker and/or financial advisor will not want you to know about these vehicles as they won't earn any commission on them. Most of the large blue chip companies offer this service - you buy 1 share, or 10 shares, from a broker, then have them issue you the share certificate - costs $50 at most firms to do this. Then once you have the share cert in your name, you can register for the company's DRIP plan, and now you can invest directly in that company on a quarterly basis with no brokerage fees, and your dividends reinvest automatically. They make great savings vehicles. All the banks offer this service, as do the big guys like Enbridge and TransCanada. Brokers won't tell you about them as I said as there is no incentive for them, they get no commission if you buy your shares directly from the company.

I just set up a DRIP for my niece with the company Exchange Income Corporation, she's only six, but now the whole family can chip in with $100 minimum investment and buy shares - you just mail off a cheque to the transfer agent with a form that you can get online. In twelve years she should have a nice nest egg for school as the dividends keep piling in and reinvesting.

http://www.dripprimer.ca/

Did you consider buying her an resp first? the government gives you 20 percent right off the bat on amounts up to 2g.

We did this with our children and had the older one spend the government contribution and interest first, that way if our second child choses not to go to school we can take the remaining cash