Never make these 10 common RRSP mistakes

When it comes to saving for retirement, many of us ignore our situation until it’s too late and have unrealistic goals. “People think they have it all figured out,” says finance instructor Tannya McBride (Bachelor of Applied Business Administration - Finance ’07), “and that’s mistake No. 1 – that they think they don’t need the advice.”

A majority of working Canadians age 25 to 64 say they are saving for retirement, yet less than half report knowing how much they’ll need to save to maintain their standard of living when they retire, according to Statistics Canada’s 2009 Canadian Financial Capability Survey.

Here, McBride and three other NAIT financial experts point you in the right direction with advice on avoiding common mistakes when saving for retirement.

1. Not taking responsibility for your retirement

“No one will ever care as much about your retirement as you will. The onus is on the individual,” says Hardeep Gill, a certified financial planner and associate chair in Bachelor of Applied Business Administration -  Finance, who advises people to pick up a book or take a course.

2. Not knowing what you want

Understand what your goals are and how much you need – and allocate the right amount of money toward that, says Jeff Shigehiro (Business Administration - Management ’03), a certified financial planner with Shigehiro Wealth Management.

3. Make sure that you, your spouse and your adviser have a clear understanding of your vision for retirement

“If that means you want to retire somewhere warmer or you want to sit at home and be a hermit – whatever you want, you just need to figure that out. And it’s never going to be bang-on accurate because the world changes, your life changes. And that’s why it’s important that on a long-term basis you’re always reviewing your vision.”

4. Making product-centred decisions

A lot of people get distracted by products, but there are a lot of products that can help meet your goals – you just need to know what your goals are, says Gill.

“Most financial planning conversations are usually around products: What mutual funds should I own? Should I be investing in Canadian equities? Those are all the wrong questions. The first question is, what are your goals?” Product decisions, says Gill, are implementation decisions that should come later.

5. Having high-risk investments as you approach and enter retirement

“One of the ways where people go wrong is extremely high exposure to equities or higher-risk stocks or mutual funds as they approach retirement,” says Shigehiro, who advises lowering your risk five years before and five years after retirement.

As you approach retirement, you should have higher exposure to fixed-income, lower-volatility investments. “They’re not going to earn you a high return, but they’re not going to drop.”

6. Not putting yourself first

“Your retirement comes first,” says McBride (Bachelor of Applied Business Administration – Finance ’07), a certified financial planner and instructor in NAIT’s JR Shaw School of Business.

“It’s great that you want to save for your kids’ education, but the best gift that you could possibly give to your children is not having them take care of you when you’re old because you run out of money.”

7. Retiring with debt

Before you even start saving for retirement – pay off your consumer debt, McBride says. Then, balance saving for retirement with paying down your mortgage. “The optimal situation would be that you retire with no debt,” she says.

8. Not participating in your employer-sponsored pension plan – or not understanding it

A lot of times, you have to opt-in – and you should.

“Sometimes employers have matching RRSP plans – that’s free money. It’s a no-brainer,” McBride says. If you’re one of the roughly 32 per cent of Canadian workers with an employer-sponsored pension plan, educate yourself about your company plan by talking to your employer or the human resources department.

9. Thinking you can live off government pension plans

“One of the reasons people don’t plan for retirement is because they think they’re going to live from government plans. The truth is that government plans are very minimal,” says McBride, who suggests talking to an adviser to learn how government plans work – and how your income in retirement will affect what you’re eligible to receive.

10. Reacting emotionally to the market

“Mutual funds are designed for the long term,” says Kristie Butler (Bachelor of Applied Business Administration – Finance ’09), an investment fund specialist with ATB Securities.

“As an investor, you have to remember markets are bound to move up and down. They do that on a daily basis. You have to learn to discipline yourself. If you know you have a long time horizon, don’t watch your money all the time, let it do its thing. And take the advice of your adviser.”

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