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Building your retirement portfolio

The right balance between now and then.

Now that you're saving for retirement, you're looking to build up your RRSP as much as possible. While your income may have increased, so likely have your monthly costs like mortgage payments, car loans and family lifestyle expenses. Here are five tips to help keep your retirement investments growing.

1. Make savings painless.

Monthly or bi-weekly contributions automatically transferred from your bank account to your RRSP are still the best way to ensure your plan continues to grow. It's fast, easy, and the benefits are significant.

2. It pays to catch up.

Unable to make your maximum RRSP contribution this year? Last year, too? Using an RRSP loan to top up can make sense. The tax refund you receive as a result may go a long way to paying off the loan.

Here's an example. Ron is 10 years from retirement with $20,000 left in RRSP contribution room. He has $5,000 on hand in his savings account. Let's say Ron invested the $5,000 in his RRSP and took out a three-year RRSP loan for the remaining $15,000.

Assuming he has a diversified portfolio with a yield of 5% (compounded annually) over the 10 years until he retires, Ron would receive $24,433 at maturity, just from the loan portion. The three-year loan will cost him $16,184 (at 5%, payment of $449.56/month) and he would be ahead by $8,249. By catching up and maximizing his RRSP, he comes out ahead and in a great position to take advantage of those potential earnings.

He would come out even further ahead if he uses his tax refund to reduce the RRSP debt at the outset.

3. Check your mate.

If one spouse will have a lower income at retirement, consider a spousal RRSP. The contributing spouse can use some or all of their maximum RRSP contribution limit, then deduct it from their own income.

The goal is to create two RRSP portfolios with approximately equal value at retirement. You'll see the benefit when it's time to withdraw. You and your spouse will have two incomes in a lower tax bracket instead of one in a higher tax bracket.

For example, one spouse with a retirement income of $100,000 will pay roughly $27,500 in taxes. Splitting that retirement income between both spouses, would generate only $20,000 in combined taxes ($10,000 each – a savings of $7,500).

4. Diversify for stability.

Diversification, that is, spreading investments across different types of assets, lets you seek higher, long-term returns and gain protection against volatility. It's especially valuable in your RRSP. The strategy is to achieve a balanced mix of investments across all the major asset classes – equities (stocks*), fixed-income and cash-equivalent securities, such as bonds*. If you have mutual funds*, both portfolio and balanced funds aim to provide instant diversification within one fund. Some take an aggressive approach to maximize performance; others take a conservative tack to emphasize stability.

5. Consider over-contributing.

Had a good year? You're allowed to make a lifetime over-contribution of $2,000 to your RRSP. Although not tax deductible, earnings are still tax-sheltered. Compounding can make a big difference over time. Be aware: if you go over the $2,000 limit, there's a monthly penalty.

Review. Review. Review.

Be sure to review your retirement plan as well as your overall financial plan, especially after a significant life event such as a lay-off, divorce, inheritance or the purchase of vacation property. This is when a investment professional is an invaluable resource. A BlueShore Financial investment advisor will help you develop or refine your retirement plan, and will be able to provide the sophisticated counseling on investment options and saving strategies you need now.