Every successful investment strategy begins with a plan. Without first knowing where you are financially, it’s impossible to know where you want to go and equally difficult to get there. The Chartered Financial Analysts Institute recently published an article cautioning investors about the 12 most common investing mistakes (click here to view article). First among them, is having no investment strategy. Further to that, a class study at Harvard University found that only 3% of students had written goals. Twenty years later, the same 3% were wealthier than the other 97% combined.

Will You Retire in Comfort?

Where will your retirement income come from? The three most common sources are: government sponsored plans; company pension plans; and your personal savings and inheritances.

The two main government sponsored programs designed to supplement your retirement income are Old Age Security (OAS) and the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP).

Government Sources

Assuming you qualify for the maximum payments in 2008, these programs combined provide an annual income of approximately $16,643. Although OAS begins at age 65, CPP can begin as early as age 60 with the benefit reduced by ½ per cent for each month you are under age 65 at the time your payments begin.

Company Pension Plans

Only 42 per cent of working Canadians belong to a company pension plan. If you are fortunate enough to be employed by a company that offers the richest defined benefit plan, after 35 years of service, you may be able to look forward to an annual pension of almost 70 per cent of your pre-retirement earnings. The maximum pension payable from a defined benefit pension plan in Canada of $70,000 is reached at a salary level of about $100,000. At this level, an executive earning $200,000 can only replace approximately 50 per cent of his earnings.

Personal Savings

One of the most effective ways of saving for retirement is through a Registered Retirement Savings Plan (RRSP). An RRSP is a personal “pension” plan you fund yourself. RRSP contributions are tax deductible and the funds inside the plan grow on a tax deferred basis. Compare an annual $5,000 deposit in an RRSP and $5,000 in a non-RRSP investment. Assuming a 46 per cent tax bracket and an eight per cent return per year, after 25 years the RRSP is worth over $272,000 more. Even if you cashed out the RRSP at the end of Year 25 and paid 46 per cent tax on the entire amount, you would still have over $90,600 more than what you would have saved outside an RRSP.

Take control of your retirement! A savings program that includes an RRSP can help make your retirement more comfortable.