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Small start, big difference

Most of us know how important it is to save for retirement, or even just a rainy day, and we want to be able to do that both confidently and effectively.

But actually beginning to save--making sense of endless acronyms and contribution limits--can be confusing and intimidating.

The good news is, most of us will save for retirement through just two main vehicles: a Tax Free Savings Account (TFSA), or a Registered Retirement Savings Plan (RRSP).

Simply understanding the difference between the two, and how to best use them, can go a long way towards helping us get comfortable saving for the future.

Charmaine White, a senior manager of wealth and financial planning at Prospera Credit Union, explains that different savings tools will work better or worse for different people.

An RRSP allows you to put money away and avoid paying taxes on it until you’re ready to use it. This is great for people who make good money now, but will have less income when they retire.

A TSFA, on the other hand, allows you to deposit a specific amount of money each year, which you can not only save but also invest in mutual funds, stocks, etc. Any money you make through a TFSA (like interest on investments) is completely tax free.

White explains that, while an RRSP allows you to essentially postpone paying taxes on money you earn, the TSFA allows you to avoid paying them altogether.

So why even bother with an RRSP? White says the old-school saving tool still has its place.

Not long ago, one of White’s client sold her business, and was facing two years earning much more than she normally would.

“But she had almost $50,000 of unused RRSP contribution room that she had just sort of been accumulating over the years, and this year it actually made sense for her to use that,” White explains.

Now, she’s put herself in a lower tax bracket this year, but the money will still be there when she retires, or when she needs a financial boost.

“The RRSP still has its place, but these days I just think, more than ever, people need to speak to someone,” White says.

“When you’ve got someone who really knows their stuff on your side, they can guide you through all these complexities. Not only does saving for retirement become way less intimidating, you can be sure you’re getting as much mileage as you possibly can out of your hard-earned savings.”

Prospera is so convinced that they can help you reach your goals, they’re even willing to give a three per cent bonus on new TFSA or RRSP deposits.

White points out that, even a small start can lead to something great. With a professional on your side, and a little extra cash in the bank, that start will be a whole lot easier.

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