In Canada, there are some places to hold the best investments for retirement income that are much better than others

Are you interested in the best investments for retirement income? Here are some tips. We recommend that, above all, you base your retirement planning on a sound financial plan. That’s because a successful retirement begins with a successful retirement income strategy.

Note too, that if you’re heading into retirement and are short of money, you should move your investing in the direction of safer, more conservative investments. That’s a far better option than taking one last gamble.

A Registered Retirement Savings Plan (RRSP) is a great starting place for investors looking for a place to put their best investments for retirement income

An RRSP is a great way for investors to cut their tax bills and make more money from their retirement investing.

They were introduced by the federal government in 1957 to encourage Canadians to save for retirement. Before RRSPs, only individuals who belonged to employer-sponsored registered pension plans could deduct pension contributions from their taxable income.

RRSPs are a form of tax-deferred savings plan. They are a little like other investment accounts, except for their tax treatment. RRSP contributions are tax deductible, and the investments grow tax-free.

You might think of investment gains in an RRSP as a double profit. Instead of paying up to 50% of your profit to the government in taxes and keeping 50% to work for you, you keep 100% of your profit working for you, until you take it out.

You can convert an RRSP to a RRIF to create one of the best investments for retirement income

A Registered Retirement Income Fund (RRIF) is another good long-term investing strategy for retirement

Converting your RRSP to a RRIF is clearly one of the best of three alternatives at age 71. That’s because RRIFs offer more flexibility and tax savings than annuities (see the pros and cons of annuities on TSI Network) or a lump-sum withdrawal (which in most cases is a poor retirement investing option, since you’ll be taxed on the entire amount in that year as ordinary income).

Like an RRSP, a RRIF can hold a range of investments. You don’t need to sell your RRSP holdings when you convert—you just transfer them to your RRIF.

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When you hold a RRIF, you must withdraw a minimum each year and report that amount for tax purposes. (You may withdraw amounts above the minimum at any time.) Revenue Canada sets your minimum withdrawal for each year according to a schedule that starts at 5.28% of the RRIF’s year-end value at age 71, reaches 6.82% at age 80, and levels off at 20% at age 95.

If you have one or more RRSPs, you’ll have to wind them up at the end of the year in which you turn 71.

ETFs can also be used in your retirement portfolio

We still feel that investors will profit the most with a well-balanced portfolio of high-quality individual stocks, but ETFs can also play a role in a portfolio.

There are three main reasons to use ETFs in your retirement investing.

• ETFs diversify a portfolio. Using ETFs, you could build a diversified portfolio of conservative, mostly dividend-paying stocks spread out across most if not all of the five main economic sectors (Manufacturing & Industry, Resources, Finance, Utilities and Consumer). But you’ll need to look carefully at an ETF’s holdings to see if it follows this investment strategy.
• Conservative ETFs are fairly low risk. Holding higher-risk stocks in your TFSA is a poor investment strategy because they come with a greater risk of loss. If you lose money in a TFSA, you lose both the money and the tax-deduction value of the loss. Conservative ETFs can be a good alternative.
• ETFs are flexible. If funds are limited, you may need to choose between TFSA and RRSP contributions, but ETFs—perhaps purchased with small monthly contributions—can be used for either.

A sound investing strategy to use in conjunction with choosing the best investments for retirement income

Dollar-cost averaging brings automatic profits—and it’s also one of the best (reverse) retirement investment plans available.

The best retirement plan you can have is to start saving as early in your working career as possible. You then invest a steady or rising amount of that money in the stock market every year. When you follow this plan, you automatically profit from dollar-cost averaging. You will automatically buy more shares when prices are low, and fewer shares when prices are high.

In retirement, you reverse the process. You live off your dividends, and sell stocks only when you need more money. When you do that, you sell your lower-quality holdings first. That way, your sales have the added advantage of upgrading the quality of your portfolio.

Of course, you can improve your returns and cut risk if you structure your retirement investing around our three-part approach at TSI Network.

• Invest mainly in high-quality investments;
• Spread out your holdings across most if not all of the 5 main economic sectors (Manufacturing & Industry, Resources & Commodities, the Consumer sector, Finance and Utilities);
• Stay out of stocks in the broker/media limelight.

Some people believe there is a looming crisis for workers that are not adequately preparing for retirement. Why do you agree or disagree with this?

Do you feel like you’re preparing for retirement in the best ways? What investment strategies are you using to help?