Dale Jackson

Personal Finance Columnist, Payback Time

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Growing your savings for retirement is so much more than picking the right investments. Within your portfolio are three potential time bombs that can blow your retirement plan to smithereens. Call it the trifecta of doom.

1. Debt. Canadian households carry nearly $1.80 of debt for every dollar they bring in. That’s a staggering burden each month, but it also takes retirement savings from forward to reverse. Instead of growing your money, debt sucks it away – often at a faster rate. Interest on mortgage debt can be as low as single-digits but consumer debt can hit the double-digits. Interest on balances for many major credit cards can reach 30 per cent. No safe investment can come near that return but every dollar put toward paying down debt is the same as generating a guaranteed return equal to the interest you would have been paying.         

2. Taxes. Like it or not, Canadians pay a lot in taxes. Like debt, every dollar paid in taxes is a dollar that is not growing in your investment portfolio. Tax experts say an effective tax plan that properly utilizes the registered retirement savings plan (RRSP) and tax-free savings account (TFSA) can boost an investment portfolio by 25 per cent over a lifetime.   

3. Fees. Unless you have an uncle in the investment industry, you must pay fees for professional investment management. Most Canadians invest for retirement through mutual funds, which typically amount to 2.5 per cent of the amount you have invested each year. That means your fund would need to generate an annual return of 7.5 per cent just to grow your investment by five per cent. Like debt and taxes, any money that is diverted from fees to investments can compound over several years in your portfolio – not theirs.