Canadians now have to rely more on their own resources and investments to achieve the retirement they want.
Echoing this reality, a recent report by the Broadbent Institute found that about half of Canadians 55 to 64 years of age have no employer pension benefits. Of those with no employer pension, less than 20% have saved enough to supplement their Old Age Security (OAS) or Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) for at least five years.1
While those numbers are alarming, it’s important to remember that you have a highly effective and accessible savings tool at your disposal – namely, a registered retirement savings plan (RRSP). However, the way you choose to use RRSPs today can make a big difference in the retirement you’ll have in the future.
Here are 10 important ways for you to grow and increase your retirement capital through RRSPs.
1. Go for the maximum – Investing the maximum amount every year allows more of your savings the chance to grow over time. For 2017, you can contribute a maximum of $26,010 or 18% of your earned income reported in the previous year. If you can’t invest the full amount, remember that unused contribution room is carried forward indefinitely.
2. Put your money to work earlier – Like many things in life, the sooner you start, the better. If you can start contributing earlier, your wealth will have a longer time to benefit from tax-free compounding.
3. Kick-off with a lump sum – Start off strong by making an annual lump-sum contribution at the beginning of the year, allowing your RRSP contribution to enjoy a full year of tax-deferred growth.
4. Make monthly investments – Instead of annual contributions, invest monthly to take advantage of dollar-cost averaging. In other words, give yourself more chances to purchase shares when prices are low and eliminate the risks of market timing.
5. Achieve greater returns – There are many ways to invest your RRSP. Consider your options, risk tolerance and time you have until retirement, and work with your advisor to invest accordingly. Remember, even a small difference in your rate of return can make a big impact in the years preceding your retirement.
6. Benefit from spousal RRSPs – If you earn more than your spouse, contributing to a spousal RRSP is a great way to reduce your overall tax bill using an “income splitting” strategy.
7. Reinvest your tax refund – Why not take your tax refund from last year and add it to your annual RRSP contribution for the current year? A bigger investment can increase your next tax refund and give the opportunity for more tax-deferred growth potential.
8. Borrow to invest 2 – Borrowing to maximize your RRSP contribution may be wise. Doing so can improve your long-term position, putting you ahead of simply making smaller retirement savings contributions.
9. Define your goal – Take the time to determine what you want out of retirement (i.e., your desired lifestyle, needs). By defining this, you can set a savings target for your RRSP and track your progress.
10. Work with an advisor – Ultimately, putting all these valuable tips to work is best done by working with a professional financial advisor. We can work with you to determine your retirement goals, financial capacity and the most appropriate RRSP strategies for your life goals.
To access a handy summary of these RRSP tips, click here for our infographic.
1 Broadbent Institute, An Analysis of the Economic Circumstances of Canadian Seniors, Richard Shillington, 2016
2 Borrowing to invest is not for everyone and will depend on the individual’s risk tolerance and time horizon; please speak to your financial advisor to find out if borrowing to invest is right for you.Call our office today if you want to make the most out of your RRSPs and ensure you are well-positioned for the future.
The Penney Team
Scott Penney, Steve and Jennifer Penney
4310 Sherwoodtowne Blvd, Suite 304
Mississauga,ON, L4C 4C4