Wondering what is the best investment for retirement in Canada? Here is some guidance to enhance your long-term success

It’s important to remember that while finances are important, the happiest retirees are those who stay busy. You can do that with travel, golf or sailing. But volunteering, or working part-time at something you enjoy, can work just as well.

Meanwhile, here are some thoughts on the best way to position your finances.

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What is the best investment for retirement in Canada? First, see how your retirement investment management works with the Canada Pension Plan (CPP)

The Canada Pension Plan, or CPP, is the name for the Canadian national social insurance program. The program pays out based on contributions, and it provides income protection for individuals or their survivors in the instance of retirement, disability or death. Since 1999, the CPP has been legally permitted to invest in the stock market.

Nearly all individuals working in Canada contribute to the CPP, unless they live in Quebec, where the Quebec Pension Plan (QPP) exists and provides comparable benefits.

Applicants can apply to receive full CPP benefits at age 65. The CPP can be received as early as age 60 at a reduced rate. It can also be received as late as age 70, at an increased rate.

What is the best investment for retirement in Canada? Here’s how to choose between investing in a TFSA and a Registered Retirement Savings Plan (RRSP)

Your TFSA can generally hold the same investments as an RRSP. This includes cash, mutual funds, publicly traded stocks, GICs and bonds.

Contributions are not tax deductible, as they are with an RRSP. However, withdrawals from a TFSA are not taxed. This makes the TFSA a good vehicle for more short-term savings goals.

If funds are limited, you may need to choose between RRSP and TFSA contributions. RRSPs may be the better choice in years of high income, since RRSP contributions are deductible from your taxable income. In years of low or no income—such as when you’re in school, beginning your career or between jobs—TFSAs may be the better choice.

Investing in a TFSA in low income years will provide a real benefit in retirement. When you’re retired, you can draw down your TFSA first, then begin making taxable RRSP withdrawals.

Over the years, as the value of your TFSA increases, you could switch to a portfolio of conservative, mostly dividend-paying stocks spread out across most if not all of the five main economic sectors.

What is the best investment for retirement in Canada? Here’s what you should know about Registered Retirement Income Funds (RRIFs)

A RRIF is a Registered Retirement Income Fund, a tax-deferred retirement plan for your Registered Retirement Saving Plan (RRSP). RRIFs are used by those who don’t plan to cash out their RRSP as a lump sum when they retire, and prefer to extend their investment and take smaller withdrawals by converting to a RRIF. Registered Retirement Income Funds offer more flexibility and tax savings than annuities or a lump-sum withdrawal.

Converting to a RRIF is the best retirement investing option for most investors. That’s because RRIFs offer more flexibility and tax savings than annuities or a lump-sum withdrawal.

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.

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.

Stay out of these income funds for retirees or you could lose money

First, eliminate anything with “asset allocation” in the name. If the fund’s name includes the term, it means the fund’s managers or sponsors feel they can enhance returns and/or reduce the risks of their funds by switching back and forth among stocks, bonds and cash equivalents, often using a so-called “black box,” a computer program that makes trading decisions based on a pre-selected set of rules for interpreting financial statistics. Then, eliminate anything with “balanced” in the name.

Funds that have the term “asset allocation” or “balanced” in their names will hold bonds, and we advise investors to stay out of long-term bonds. That’s because bonds are unlikely to perform as well in the next few years as they have in the past, mainly because interest rates are likely to keep rising.

Next, eliminate theme funds where the theme is plucked from today’s headlines. These funds often suffer from “pseudo-diversification.” That is, they have lots of different stocks in their portfolios, but these stocks all respond to the same economic or other factors.

Use our three-part Successful Investor approach to develop an ideal portfolio for retirement

1. Invest mainly in high-quality, dividend-paying investments;
2. 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);
3. Stay out of stocks in the broker/media limelight. 

What do you consider to be the best investment for retirement in Canada?

What is your plan for retirement investing?