an rrsp

EPCOR POWER, L.P. $15.04 (Toronto symbol EP.UN; Shares outstanding: 53.9 million; Market cap: $810.7 million; SI Rating: Extra Risk) has interests in 25 power plants in Canada and the U.S. These generate a total of 1,400 megawatts. In the three months ended June 30, 2009, EPCOR’s revenue rose 14.8%, to $165.2 million from $143.9 million. Cash flow per unit rose 29.1%, to $0.71 from $0.55. The trust’s plants generated and sold more power, including output from the Morris cogeneration facility in Illinois, which EPCOR bought late last year for $72.2 million U.S. Despite the improved results, EPCOR was still paying out almost all of its cash flow to unitholders, so it cut its quarterly distribution by 30.2%, to $0.44 a unit from $0.63, with the June 2009 payment. At this rate, it will pay out roughly 75% of its cash flow. EPCOR believes it can sustain this rate regardless of whether it remains a trust or converts to a corporation in 2011, when Ottawa’s new income-trust tax takes effect. EPCOR now yields 11.2%....

When you turn 71, you have to roll over your RRSP into a RRIF. However, you don’t have to sell any of your securities at that point. Your RRSP is simply redesignated as a RRIF (you do need to fill out some paperwork to open a RRIF account and complete the conversion). The portfolio stays the same until you make changes in it. The main difference between an RRSP and a RRIF is that you must make a minimum percentage withdrawal each year from your RRIF’s asset value, and report that amount as income for tax purposes. (You may withdraw amounts above the minimum at any time.) The yearly minimum gradually increases on a fixed schedule. It starts at 7.38% of the RRIF’s year-end value at age 71, reaches 8.75% at age 80, and levels off at 20% at age 90. The money you withdraw from your RRIF is taxed at the same rate as ordinary income, much like an RRSP withdrawal....

TFSAs let you earn investment income — including interest, dividends and capital gains — tax free. You could only invest $5,000 this year to start your TFSA. However, you gain an additional $5,000 of contribution room (indexed to inflation and rounded to the nearest $500 on a yearly basis) every year, plus you get to carry forward unused contribution room from previous years. (So in 2010 you’ll have $10,000 of contribution room, $15,000 in 2011, and so on.) ...

On his Wealthy Boomer web site, Financial Post personal-finance columnist Jonathan Chevreau recently made the link between the time you start saving for retirement and when you will be able to start your retirement in earnest. Click here to read the full article on the Wealthy Boomer. Chevreau has been the personal-finance columnist at the Financial Post since 1996, and is the author or co-author of eight financial books, including The Wealthy Boomer and Findependence Day, released last fall. His Wealthy Boomer blog features interviews with investment experts (including Pat McKeough)....

Index-linked GICs are just one of a variety of investment products that propose to provide the holder with guaranteed income plus capital gains linked to growth in one or more stock-market indexes, commodities or whatever. Index-linked GICs are marketed as offering all of the advantages of stock-market investing with none of the risk. But banks and trusts aren’t in the business of giving customers something for nothing. The capital gain that holders get depends on an ingenious formula, spelled out in the fine print, which is cleverly designed to sound generous while minimizing the potential payout. Returns on index-linked GICs or bonds are taxed as interest. That’s because you’re not actually investing in the stock indexes themselves; you’re just getting paid interest based on the change in the indexes. That’s a drawback, because interest is the highest taxed of all investment returns. Usually, stock-market investing yields capital gains and dividend income, both of which are taxed at a lower rate than interest. Of course, if you hold the GICs in an RRSP, all income is tax deferred....

Lately we’ve heard from some investors who are unhappy with some of their investments, particularly their more aggressive investing picks. They want to rebuild their portfolios, but are reluctant to sell anything at today’s lower prices. We think that’s a mistake. Obviously you want to think things through and make sure you are not holding low-quality investments, or investments that are wrong for your portfolio. Once you’ve done that, our view is that you should switch to higher quality and more appropriate investments right away. You have nothing to gain by making back any losses you may have in the same aggressive investing selections that gave you those losses. Nor are you any more likely to regain your losses by holding on to the same stocks. In fact, if your investments are genuinely poor quality (rather than simply a bad aggressive investing choice for you), there’s a risk that they will cost you even more money, the longer you hold them....

Right now, Canadian income trusts pay out a high percentage of their cash flows to their unitholders. This lets them avoid paying corporate taxes. It also gives many of them significantly higher yields than a lot of dividend-paying common stocks. In 2011, the Canadian government will begin taxing income trusts (with the exception of real estate investment trusts or REITs)....

Long-time Successful Investor readers may recall that a decade or two ago, we regularly reminded them that dividends could contribute up to a third of their long-term investment returns, without even considering the tax-cutting effects of the dividend tax credit (see below). Earlier in this decade, yields of dividend paying stocks were generally too low to provide a third of investment returns. But now that yields of dividend paying stocks have moved back up to their current level, it’s realistic to assume they will once again contribute as much as a third of your total return. That’s a good thing for investors, since dividends are more dependable than capital gains as a source of investment income. ...

Ottawa’s new Tax-Free Savings Accounts (or TFSAs) let you earn investment income — including interest, dividends and capital gains — tax free. A tax-free savings account can generally hold the same investments as an RRSP. This includes cash, mutual funds, publicly traded stocks, GICs and bonds. However, you are best to hold lower-risk investments in your TFSA. That’s because you don’t want to suffer big losses in your TFSA. If you do, you can’t use those losses to offset capital gains. You’ll also lose the main advantage of a TFSA: sheltering gains from tax. You won’t have gains to shelter if the value of your investments falls....

Here are two simple retirement investing strategies that can help you maximize your investments in RRSPs. Planning your retirement investing and picking stocks for your RRSPs can be difficult. It can be tempting to pick higher risk (and potentially higher return) stocks for your RRSPs. However, we believe these investments are generally unsuitable for this type of retirement investing, and that higher-risk stocks should be held outside of an RRSP. That’s because if higher-risk stocks lose money in your RRSPs, you have a triple loss:...