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The Companion Advisor: Retirement Planning

Women and RRSPs: Just do it!

A generation ago, Canadians subscribed to a more traditional role for women, one in which women married in their twenties, started a family and may only have rejoined the workforce after their youngest child was in school. Their retirement was supposed to be provided for by government programs and by their spouse. These days, women are increasingly expected to take care of their own financial futures. The reasons are compelling:

Women tend to outlive men. According to 1990 Statistics Canada data, women lived to age 80 on average, as opposed to age 74 for men.

Women have less time to build up retirement funds. A study by Monica Townson for the Canadian Advisory Council on the Status of Women, released in 1995 and entitled Women's Financial Futures: Mid-Life Prospects for a Secure Retirement, found that women aged 45 to 54 may have willingly given up some of their working lives to raise their children but almost three-quarters of them earn their own income now. They have only two decades of employment to save for their retirement, instead of the four decades that most men get.

What are women doing about these new realities? Only about 20 per cent of women who filed income tax returns in 1991 contributed to RRSPs.

As Ann Landers would say, it's time to wake up and smell the coffee!

If you're female and want to ensure financial dignity in your retirement, seriously consider these suggestions:

Make as large an RRSP contribution as you can afford, every single year, starting right now. If possible, make up for past years when you couldn't contribute the maximum. You are entitled to carry forward unused contributions indefinitely, going back to 1991.

If you are a married woman who has never worked outside the home, educate yourself on your family's entire financial situation including your assets and debts. Ask your partner about their pension plan, for instance. After their death it may disappear, drop by half, provide you with a lump sum or only pay for a few years. Also, inquire about your partner's life insurance as you may require your own coverage to carry you through until your own retirement. Determine what you've got in RRSPs -- yours, your partner's, and spousal plans. You don't want to have to scramble for any of this information late in life, especially if you are on your own.

Speaking of spousal RRSPs, they can help you build equal retirement assets and ultimately earn approximately equal incomes during your golden years. Your partner can buy you a spousal RRSP instead of making an RRSP contribution in their own name. They get the tax deduction, and you get the money in your hands. As long as you leave the money in your RRSP for at least three years, the money will also be taxable in your (presumably) lower-income hands when it comes out. Reverse this strategy, of course, if you make more money than your partner.

Ensure that you are the designated beneficiary of your partner's RRSPs. Their contents can then roll directly over into RRSPs in your name upon their death, without the time and cost of probate.

Even if your marriage is built upon the rock of Gibraltar, arrange for some assets in your own name. Investments are good for your self-esteem, and if you apply yourself, you may even give your spouse a run for the money in financial planning.

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© 1997, Fiscal Agents Money Management Newsletter 
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