Harvest Portfolios Group

Three Retirement Considerations after the RRSP deadline passes | ETFs

February 27, 2023
Three Retirement Considerations after the RRSP deadline passes | ETFs

By Harvest ETFs

RRSP deadline season often comes with a flurry of investment tactics and tips as Canadians scramble to maximize their potential RRSP deductions for the last tax year. In the midst of these deadline challenges and short-term tax strategies, it can be easy to lose sight of why Canadians make RRSP contributions in the first place: to save for retirement. To help reset that focus, we’ve compiled a few considerations for Canadians as they think about what investments they’re holding in their RRSPs, and how those investments could serve their long-term goals.  

#1. Consider your companies

When investing in equities or equity strategies, whether through single stocks, mutual funds, or ETFs, it’s crucial to consider the companies you are holding. Sometimes we can see equities as just a green line on a website, without asking ourselves why a stock is attractive as an investment.

This might seem simple, but it’s important for investors to remind themselves that owning an equity means owning part of a business. When investing with a long-term time horizon in an account like an RRSP, the long-term performance of that business is very important to consider.

Investors may want to examine the size of a business, what economic forces it’s exposed too, and how it has navigated economic cycles in the past. At Harvest ETFs, we work to identify “leading” businesses, through a set of quantitative and qualitative metrics. By considering market capitalization, market share, and a range of factors specific to each of our ETFs’ objectives, we can determine what we believe are the best stocks to hold for the long-term.

When Canadian investors look at what they’d like to hold in their RRSPs, they may want to consider the underlying businesses they would want to be holding for the long-term.

#2. Income can make a huge difference

It’s one thing to grow your capital, it’s another thing to live off it. Canadians planning for their retirement may want to think about both how they grow capital now, and how they’ll use that capital to finance their retirement goals and lifestyles. Canada Pension Plan benefits can help somewhat, but they are unlikely to meet your retirement needs – especially if you wait until you turn 71 to max out those benefits.

Income-generating investments play a crucial role for Canadian retirees. Fixed income products like Bonds and GICs have been popular for decades. However, they tend to pay out at somewhat low rates, often below the rate of inflation.

Canadians planning for retirement can find inflation-beating income from Equity Income ETFs, which use a covered call strategy to generate high income yields from portfolios of equities. Harvest ETFs offers a suite of Equity Income ETFs, as well as six Enhanced Equity Income ETFs—which apply modest leverage to generate an even higher income yield.

The high rates of income paid by these ETFs can help both retirees and pre-retirees. While saving for retirement, that income can be seen as a reliable contributor to total portfolio returns, especially in down or flat markets. During retirement, that income can help pay for your overall retirement lifestyle.

Learn more about why Retirement Income is so important here.

#3. You can compound now, and offset withdrawals later

The final consideration for income-generating investments is how that income can be used in both the leadup to and during retirement.

Many investors in the leadup to retirement are more focused on growing their retirement savings, rather than using their investments to pay for their lifestyles now. During that growth period the attractive yields paid by Harvest Equity Income ETFs can be reinvested into more units of those ETFs through a Distribution Reinvestment Program (DRIP). Those reinvestments, over time, can expose investors to the power of compounding held inside of an RRSP, which can help build up the savings someone needs to retire.

Once an investor transitions to Retirement, and turns 71, their RRSPs convert to RRIFs. RRIFs are subject to a mandatory withdrawal schedule set by parliament. It may be the case that investments held inside a RRIF might have to be sold in order to meet the mandatory withdrawal level. If that occurs in a down market, the withdrawal could have significant consequences for a retiree’s portfolio.

High income from Harvest ETFs can offset those withdrawals, meeting some or all of the withdrawal limit without having to sell any assets. The underlying assets will retain their market exposure, while the income they pay offsets withdrawals. You can learn more about how equity income can offset RRIF withdrawals here.  

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