Pattie Lovett-Reid: How to get across the RRSP finish line
The deadline to contribute to your registered retirement savings plan for the 2018 taxation year is March 1. Despite all the warnings we’ve heard about making that deadline, some people are still hesitant, procrastinating or simply unaware that RRSPs are a key component of retirement savings.
Here are a few tips to help you get across the finish line:
1. Contribute now and invest later: Put the money into an RRSP savings account and decide in the coming weeks how to invest it.
2. Don’t be afraid to borrow: We are still in a very low interest rate environment, so consider borrowing and check out the various lending options at your financial institution. You can have debt and still contribute to an RRSP. It is about managing your financial balance sheet.
3. Examine your family situation: You may not want to contribute to your RRSP, however, a spousal RRSP may make sense. Look at your family situation in retirement and look for ways to equalize income to the best of your ability. In doing so the potential is there for the whole family to pay less in tax. This works especially well when your spouse’s income is lower than yours now and even early into retirement.
4. Optimize your plan: An RRSP is a plan and not a product. A plan allows you to put investments into it on a tax deferred basis, so you want to be strategic. Contributing to the plan is only half the equation. Investing the money to work for you as hard as you worked for it is critical. Diversification matters. Never invest in one company, one sector, one country or one asset class.
5. Let your money grow: If you have been savvy enough to contribute to your RRSP, try as best as you can not to dip into it. Let time and compounding work for you. Time in the market with quality investment supports long-term growth regardless of temporary market pullbacks. Plus, there are lifetime limits that are valuable and you don’t want this compromised due to a withdrawal.
The bottom line is, the last-minute RRSP hustle could all be avoided if you contributed on a monthly basis through a pre-authorized purchase plan, in which money comes out of your account directly often on a monthly basis.
It’s also important to keep in mind that an RRSP is not a comprehensive retirement plan – it is a vehicle that allows you to save. A proper retirement plan includes tax planning, investment strategies, generating income streams and most importantly, determining how you expect to enjoy your retirement years. Lifestyle considerations will drive the amount of money you need tucked away.
It’s time to take control of your retirement now and make a RRSP contribution so that you can figure out the rest later. The clock is ticking.