It’s that time of year when everyone goes into panic mode trying to find some extra pennies to invest in an RRSP to save some of your hard earned taxed money. 68 per cent of Canadians have a Registered Retirement Saving Plan (RRSP), that leaves nearly one-third of Canadian without. Some non-RRSPers choose to plan for retirement in other ways (primarily through employer-sponsored pensions) and others are financially savvy types managing their investments using other vehicles. Whether you’re financially savvy or not – but especially if you’re not – RRSPs are a fantastic way to save for retirement. Think of an RRSP account as a lockbox for your savings, only better.
Here’s why.
• Contributions are tax deductable, bringing down your gross income for income tax purposes.
• Your RRSP is a tax shelter. You don’t pay tax on your investment income (until it’s withdrawn), meaning the overall value grows much faster.
• You won’t be taxed on your RRSP until you make withdrawals, presumably during retirement. It will be taxed as income – most likely at a lower rate since you’ll be earning less then as compared to now, your peak earning years.
The younger you are, the less likely you are to make any contribution. You will have every excuse in the book a to why you CAN’T make a contribution to save you money in the long run. The mistake most people make is that you think you need to put down a big chunk of cash. You don’t! The sooner you start, the better it will be in the long run. Even a small amount grows and saves you taxed dollars. Do you have a child with a part-time job? Your child can start creating RRSP room for the future by filing a tax return even if he or she does not earn enough to pay taxes. The excuse I hear is I’m barely making ends meet and have no extra money to put into an RRSP. I’ll bet dollars to donuts, if you took a careful accounting of the money you spent on impulse purchases, you’d have more than enough to make even a small contribution. But plan on doing a little something every month. Most of us usually wait to the last minute and plunk down a block of cash. If you did it monthly, there wouldn’t be the same strain or shock, plus it willbe making interest for you at the same time. Make that money work for you.
I’m not a financial advisor or someone who has a grasp on the investment industry. Take a moment and get some direction or find an investment advisor. I would ask everyone to consider getting an RRSP as soon as you can. You may think tomorrow is a LONG way away. Well, before you know it, tomorrow will be here and you will little to sustain those later years when you will not be earning an income. A little pain is definitely worth the long term gain. Deadline for contributions is midnight February 28th.
