Some new immigrants can struggle with the reality of having to rethink how they save for the future when they arriveTREVOR JOHNSTON/The Globe and Mail
Start early and save regularly. The golden rule of retirement planning can be hard to follow when you're a recent immigrant, just starting a new life in Canada.
Statistics Canada says about three-quarters of the 250,000 immigrants who enter the country each year come with some savings. But most of these newcomers must draw on their savings to make ends meet while they look for work or start a business in their new home. And the savings they arrived with are diminished by more than 50 per cent within six months, according to StatsCan.
"Immigrants face a lot of challenges as they settle into a new home and a new culture," says Richa Hingorani, senior manager, financial planning support, RBC. "Getting their financial lives in order is among the top challenges, especially during their initial years in Canada."
Nick Noorani, a Vancouver-based immigrant advocate and author of Arrival Survival Canada: A Handbook for New Immigrants, says the financial challenges are often more urgent for immigrants aged 40 years or older.
"They have a pension back home, which usually translates into fewer Canadian dollars, and they have a shorter period to contribute to the CPP (Canada Pension Plan)," he says. "These all translate to a financial shortfall in their retirement years."
While money is often tight for recent immigrants, many identify saving and investing as critical to succeeding in their new life in Canada, notes Ms. Hingorani. However, some may feel intimidated by the country's unfamiliar financial structure and by the prospect of starting a nest egg from scratch when so many around them have already been saving for years.
Ms. Hingorani advises it's never too late to start saving for retirement, whether you're a newcomer to Canada or just someone who, for whatever reason, has delayed retirement planning.
"The important thing is to make that decision to start saving money now," she says. "Once you do that, you can start the process of sitting down to identify your financial goals so you can figure out how much you need to start putting away to meet those goals."
Both newcomers and late starters should take the time to educate themselves about Canada's financial system and the investment and savings options available to them, adds Ms. Hingorani.
Mr. Noorani agrees. He points to newcomer services and products offered by many Canadian banks as a great starting point for immigrants who want to learn how to use the country's financial system.
"Some of these services are quite comprehensive, and you're dealing with bank staff specially trained to understand the unique challenges that new immigrants face," he says.
Ms. Hingorani notes that many new immigrants come from countries with lower income taxes than Canada and find the idea of investing to save taxes quite appealing. That's why a Tax-Free Savings Account (TFSA) is ideal for newcomers.
In addition to offering tax-free growth, a TFSA also makes sense for new arrivals because they're starting with no contribution room for a Registered Retirement Savings Plan (RRSP), says Ms. Hingorani.
"They cannot immediately take advantage of an RRSP's tax benefits because RRSP contribution allowance is based on income from the previous year," she explains. "So as a starting point, it's highly recommended that new immigrants put their money into a TFSA, especially if they're looking to tax-shelter funds they've brought from their country of origin."
Newcomer couples also should consider maximizing each spouse's TFSA and, perhaps, even opening accounts for their adult children, in order to take full advantage of the annual contribution limit.
Mr. Noorani notes that many new immigrants put money into an RRSP as soon as they can because they plan to buy a house in the near future and want to take advantage of the federal government's Home Buyers' Plan, which allows first-time home buyers to withdraw up to $25,000 from their RRSPs.
While this is a good idea, Ms. Hingorani advises recent immigrants who have started putting money into an RRSP to wait until they've reached a higher income level before claiming the contributions as a tax deduction.
"And even when you start contributing to an RRSP, keep putting money into your TFSA," she says. "When your income reaches a certain level, you can maximize your RRSP contributions and optimize your tax position by withdrawing TFSA money and putting that into your RRSP. You can then recontribute the same amount to your TFSA the following year."
Some newcomers who haven't found work yet can create RRSP contribution room by buying a rental property, adds Ms. Hingorani.
"The rental income counts toward your RRSP contribution room," she says. "For immigrants who are not earning right away from a job and have money to invest in a rental property, this is a strategy they might want to consider."
The strategies described by Ms. Hingorani also apply to late starters, she says. For this group, however, she underlines the importance of creating a budget and a plan for saving regularly.
"How much you can save will depend on how much you can afford," she explain. "And without a budget, it's hard to get a realistic view of what you can put away each month."
New immigrants and late starters should also sit down with a financial adviser to talk about how they can best grow and tax-shelter their money through an optimal mix of registered and non-registered investments, says Ms. Hingorani.
"There is a lot that a financial adviser can help with, including explaining the different types of investments and how the income or gains from each investment is taxed," she says. "This is a conversation that needs to happen, whether you're a new immigrant or an individual who's just now ready to start saving for retirement."
This content was produced by The Globe and Mail's advertising department, in consultation with RBC. The Globe's editorial department was not involved in its creation.