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Question:

Smart Moves For Your RRSP

Answer:

No matter what’s happening in the markets, an RRSP is still one of the best ways to save for retirement. You get tax benefits plus the magic of compound interest working for you. So here’s how to make the most of your Registered Retirement Savings Plan.

Save automatically

If you act on only one idea here, make it this one. Because the difference between retirement success and failure isn’t how much money you make, or how smart you are, but how well you conquer the all-too-human tendencies to procrastinate and under-save. So ask us to automatically route smaller, regular contributions from your chequing account to your RRSP. You’ll get the advantage of dollar cost averaging, you’ll probably save more, and there’s no more scrambling at RRSP season.

Save the max

Contributing your maximum is essential to taking full advantage of your RRSP. If you don’t have the money, consider an RRSP loan or using a line of credit. You'll pay interest, but the compounding growth of your money over the long term may far offset the interest costs. Another smart move — use your tax refund to pay down the amount you borrowed.

Save sooner

Make your contribution as early in the year as possible instead of leaving it until the 60th day of the following year when the RRSP deadline is looming. You’ll benefit from up to 14 extra months of tax-deferred compounded growth.

Catch up

Use up your carried forward contribution room as soon as possible. If you can’t catch up in one lump sum, consider borrowing. Check the Notice of Assessment sent to you by the Canada Revenue Agency to find your unused contribution room.

Save for your spouse

If you’re the family’s higher income earner you can invest some or all of your contributions in your spouse’s RRSP and claim the tax deduction. The big benefit comes at retirement when more equalized nest eggs can reduce your combined tax bite and mean more cash to live on.

Name a beneficiary

If you don’t name a beneficiary your RRSP will be considered part of your estate and be subject to probate, taxes, and other fees. In some cases that can reduce its value by almost 50%. If you name your spouse or a dependent child/grandchild as the beneficiary, your RRSP transfers to them tax-free.

Start early

It’s practically ‘the’ universal law of saving — start early. You’ll get time and compounding working for you. And that can make a big difference to how much you need to save. A person making $50,000 who wants a retirement income of $40,000 needs to put aside about 8% of their salary each year if they’re starting to save at age 25, but 22% if they’re starting at age 50. 

Get advice

Whether you’re new to investing, or a seasoned veteran, it’s always a good idea to get professional advice. So give us a call to book a one-on-one consultation and talk to one of our trusted advisors who can provide you with an expert’s insight and help you make informed decisions about your RRSP.   

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