The primary reason why most people work is to save enough for retirement. But there are certain mistakes that you need to avoid allowing you to accelerate your retirement plan by a few years.
For instance, if you invest in the equity markets, it makes sense to take a long-term view. You also need to focus on optimal asset allocation depending on your income, age, and risk appetite.
But according to a survey conducted by Fidelity Investments, 70% of respondents emphasized their biggest mistake is not leveraging the benefits of investing in accounts such as the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA).
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Why should you invest in the RRSP and TFSA?
Registered accounts such as the RRSP and TFSA offer Canadians significant tax benefits. For example, you can lower your tax liability by 18% each year by investing in the RRSP. So, if you earn $100,000 annually, you can allocate $18,000 towards the RRSP, reducing your taxable income to $82,000.
The amount contributed towards the RRSP will be taxed on withdrawal. If you withdraw from the RRSP in retirement, the taxable income should be much lower, making it a top choice for equity investors.
Alternatively, you can contribute post-tax savings to the TFSA. Introduced in 2009, the cumulative contribution amount stands at $88,000 in 2023. Any earnings generated in a TFSA in the form of interests, dividends, and even capital gains are exempt from Canada Revenue Agency taxes.
Given these benefits, Canadians should ideally maximize these contributions each year. You can also carry forward any unused contribution room in the following years and profit from the flexibility associated with these accounts.
Hold dividend growth stocks in the TFSA and RRSP
Investors should consider holding dividend-growth stocks in the TFSA or RRSP. This strategy allows you to earn passive income and enjoy capital gains over time. One such quality TSX dividend stock is Brookfield Infrastructure Partners (TSX:BIP.UN), which currently offers you a yield of 4.6%.
Despite a sluggish macro environment, Brookfield Infrastructure increased funds from operations, or FFO, by US$552 million, an increase of 8% year over year, showcasing the resiliency of its business model.
It secured a marquee data centre platform in the second quarter and completed a majority of its capital recycling goals for the year. It also exceeded its annual deployment objective by investing US$2 billion in three new investments in 2023.
In the June quarter, Brookfield Infrastructure announced the acquisition of a controlling stake in Compass Datacenters, a leading hyperscale data centre platform in North America. The acquisition provides BIP with a contracted development pipeline and accelerates its domestic growth strategy. BIP is now among the largest hyperscale data centre developers globally.
With its deployment and recycling goals well ahead of estimates, BIP is focused on integrating these newly acquired businesses and building out a comprehensive data centre platform.
The company stated, “We continue to screen a large number of investment opportunities as access to large scale and flexible capital is surfacing many opportunities in this capital-scarce environment. Our business will continue to pursue accretive and value-based acquisition opportunities, while leveraging our size and global footprint to recycle capital where investor interest in well-contracted critical infrastructure is the highest.”
