How Do I Invest for Retirement?

For advice in devising an investment strategy that will complement your retirement savings goals, contact an investment expert at CDSPI Advisory Services for assistance at absolutely no cost to you. In the meantime, the information below will give you a general understanding of some concepts to consider when planning your retirement investments.

Shelter Your Investments in an RRSP

A Registered Retirement Savings Plan (RRSP) shelters assets held within it from taxes, providing ideal conditions for your investments to flourish. The principal and the growth on the money you place inside your RRSP will accumulate tax-free as long as the money remains in the plan. Additionally, each year you contribute to an RRSP, your taxable income will be reduced by the amount of your RRSP contribution.

What Sort of Investments Should I Put in My RRSP?

The investments you’ll want to consider selecting for your RRSP will depend on a variety of factors. If there are decades before you’ll reach retirement, it’s likely that you can take a more aggressive approach to investing, since you will have more time to ride out any temporary downturns in the markets.

Like all investment strategies, how you structure your RRSP portfolio will also depend on other factors — such as your tolerance for risk, your current financial situation, and your investment knowledge. (To find out what type of investor you may be and which sort of asset allocation may be appropriate for you, click here.)

How Much Money Will I Need to Save for Retirement?

To gauge how much money you’ll need to contribute to your RRSP each year, consider the following examples listed in the table below:

Note: The calculations used in this table assume you’ll be retired for 20 years, that your investments will earn a 8 per cent annual rate of return, and that a 4 per cent compounded rate of inflation will apply so that the annual income shown has been adjusted to account for inflation.

* This figure exceeds the annual amount you can currently contribute to an RRSP. In order to achieve this goal, you may also have to invest outside of a registered plan.

You can test out different RRSP savings strategies with our handy Retirement Planner calculator by clicking here.

Some RRSP Rules

Maximum Contribution and Deadline
Unless you're a member of a registered pension plan, you can contribute 18 per cent of the previous year’s earned income to an RRSP each year (up to a maximum of $20,000 for the 2008 tax year and $21,000 for the 2009 tax year). You can make your contribution in the tax year in which you intend to apply the contribution, or up to 60 days after the end of that year.

RRSP Withdrawals and Conversion
With a few exceptions, you will pay tax on money you withdraw from your RRSP. When you remove money from the plan you will also normally lose the contribution room that’s associated with it, forever. You should try not to remove money from your RRSP until it is needed at retirement.

You can also obtain more information about RRSPs by downloading the 25-page booklet: Your Retirement Savings Planner. Click here to download it.

For more information on RRIFs, please contact CDSPI Advisory Services.

Use Your Corporation to Fund Your Own Pension

As the “Annual RRSP Contribution Required” chart above illustrates, RRSPs simply can’t help dentists achieve a comfortable level of retirement income unless they start making substantial contributions to the plan early in their careers.

Fortunately, there’s another way for established dentists to significantly increase their tax-free savings for retirement — through the use of the CDA IPP (Individual Pension Plan), invested in the CDA funds of the Canadian Dentists' Investment Program.

What is an IPP?

An IPP is a defined benefit pension plan that you can use to fund your own pension if you own an incorporated dental practice. With the assistance of an actuarial professional, you determine the pension income and contribution amounts that are right for you. (In contrast to the maximum RRSP contribution limit of $20,000 for the 2008 tax year, an IPP could require annual funding as high as $40,000 or more.) The contributions and growth accumulated must be able to fund this ultimate benefit through a practical investment strategy.

Then, your corporation makes tax-deductible contributions to invest within the plan. To ensure the plan is being properly funded, an actuarial valuation will be required periodically. When you retire, the funds in the plan will provide you with a predetermined annual benefit in retirement.

Who Can Benefit From an IPP?

Candidates for IPPs are dentists with professional corporations aged 40-65 with annual incomes in excess of $100,000 — since dentists in this age and salary range will qualify for higher annual contributions. 

What are the Unique Advantages of the CDA IPP?

The CDA IPP offers dentists many distinct advantages — including significant tax savings. Because you can make higher contributions to an IPP (compared to an RRSP), you’ll be able to make use of higher tax-deductions to lower your corporation’s taxable revenue. Furthermore, if your corporation has existed for a period of time before establishing an IPP, you may be eligible to make additional past service contributions to the plan.

Along with set-up and valuation fees that are among the lowest available anywhere, you’ll also benefit from all of the advantages of the CDA family of funds — including exceptional past performance records; extremely low fund management fees; and no transfer, load or commission charges; as well as leading fund managers.

How Do I Take Advantage of the CDA IPP?

For assistance in setting up an IPP invested in the funds of the Canadian Dentists' Investment Program, or if you have any questions, speak to a certified financial planner* at CDSPI Advisory Services Inc.

Or for more information, download the CDA IPP brochure from CDSPI’s website.

Actuarial services for the IPP Service are provided by Gordon B. Lang and Associates Inc.

* Restrictions may apply to advisory services in certain jurisdictions.

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