Choose the right tools to build your retirement savings

Август 9, 2022

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Choose the right tools to build your retirement savings

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2. The right tool for the job A Registered Retirement Savings Plan (RRSP): Can save money today
3. The best time to start contributing is now Even if you’ve missed making contributions in previous
4. The scenario You would like to optimize your RRSP investment Your cash on hand is less
5. The numbers You have $7,000 in cash Your marginal tax rate is 40% Your tax refund
6. The alternative Borrow $4,667 Add it to your cash of $7,000 Use the refund to pay
7. The formula (Cash on hand x marginal tax rate) (100%- marginal tax rate) or ($7,000 x
8. The bigger bang Total RRSP Contribution Reinvest Refund RRSP $7,000 Refund $2,800 Total $9,800 Borrow1 Cash
9. The cost Refund $11,667 x 40% $4,667 Loan - $4,667 Interest for 90 days - $40
10. The right tool for the job The best time to contribute to your RRSP is now
11. Standard RRSP Loan details *As at November 1, 2015 Manulife Bank’s Prime Rate is 2.70% and
12. Manulife Bank also offers larger loans to accelerate your RRSP *As at November 1, 2015 Manulife
13. Important notes Borrowing to invest in an RRSP may not be appropriate for everyone. You will
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The right tool for the job
A Registered Retirement Savings Plan (RRSP):
Can

save money today through tax savings
May provide a larger investment portfolio at retirement
But it only works… if you actually use it

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The best time to start contributing is now
Even if you’ve missed

making contributions in previous years, don’t worry…
…there’s no time like the present
An RRSP Loan may get you back on track

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The scenario
You would like to optimize your RRSP investment
Your cash

on hand is less than the amount you would like to contribute
You decide you will contribute what you can now and invest the tax refund later

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The numbers
You have $7,000 in cash
Your marginal tax rate is

40%
Your tax refund will be $2,800 when you contribute to your RRSP
Total RRSP contribution = $9,800

For illustration purposes only

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The alternative
Borrow $4,667
Add it to your cash of $7,000
Use the refund

to pay off the loan

For illustration purposes only

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The formula
(Cash on hand x marginal tax rate)
(100%- marginal tax rate)
or
($7,000

x 40%) = $4,667 loan 60%
I can also show you the Manulife Bank RRSP Optimizer Calculator tool to assist you with determining the RRSP Loan amount that equals the expected tax refund excluding the cost of borrowing

For illustration purposes only

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The bigger bang
Total RRSP Contribution
Reinvest Refund
RRSP $7,000
Refund $2,800
Total $9,800
Borrow1
Cash $7,000
Loan $4,667
Total

$11,667

1Full $11,667 contributed in current year and claimed for current year.

For illustration purposes only

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The cost
Refund $11,667 x 40% $4,667
Loan - $4,667
Interest for 90 days - $40
Not

covered by refund $40

For illustration purposes only
A rate of 3.50% is used in this illustration for an RRSP Loan.

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The right tool for the job
The best time to contribute to

your RRSP is now
Take advantage of compounding
Generate a tax refund
Keep your RRSP plan on track

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Standard RRSP Loan details
*As at November 1, 2015 Manulife Bank’s Prime

Rate is 2.70% and the Annual Percentage Rate (APR) for RRSP Loans is 3.20%. The APR is based on a one-year term with 12 regular monthly payments. Rates are variable and subject to change.

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Manulife Bank also offers larger loans to accelerate your RRSP
*As at

November 1, 2015 Manulife Bank’s Prime Rate is 2.70% and the Annual Percentage Rate (APR) for RRSP Accelerator Loans is 4.20% and for RRSP Accelerator Max Loan is 5.20%. The APR is based on a one-year term with 12 regular monthly payments. Rates are variable and subject to change.

Manulife Bank RRSP Accelerator Loans have competitive interest rates and are available in two categories – RRSP Accelerator Loan which allows for loans up to $50,000 and RRSP Accelerator Max Loan for loans up to $150,000

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Important notes
Borrowing to invest in an RRSP may not be appropriate

for everyone. You will need the financial means to meet your loan obligations. In addition, investments held in an RRSP may fluctuate in value. You should be aware that, regardless of their performance or value of any investments held in your RRSP, you will be required to meet your loan obligations in full. Talk to your financial advisor to find out more about the advantages and obligations of borrowing to invest. Manulife Bank of Canada solely acts in the capacity of lender and loan administrator and does not provide investment advice of any nature to individuals or advisors
Please ensure you read the terms of your loan agreement and the investment details for important information.
The Dealer and Advisor are responsible for determining the appropriateness of investments for their clients and informing them of the risks associated with borrowing to invest.