RRSP 2016

Planning for the Future with 2016 RRSP Contributions

Christmas is now safely in the rearview mirror and everyone’s back to grind of work. That means it’s time for RRSP season.

With the 2016 RRSP contribution deadline of February 29^th fast approaching, this is the perfect time for Canadian workers to invest in their future.

A recent survey conducted by TD Bank found that nearly one third of millennials have limited knowledge of how RRSP savings work and how they can benefit both their long and short term goals.

The survey found that many people aged 18 to 33 do not fully understand how a registered retirement savings plan works and how they can be used. Many assumed that money contributed towards an RRSP could only be utilized for retirement. Most were unaware that RRSP funds could be utilized to purchase a home, or to serve as a savings fund for future educational opportunities.

In addition to not fully understanding the benefits of a RRSP plan, some millennials assumed the funds could be used for many things not covered by the plan such as car payments, childcare expenses and charitable donations. None of these life expenses can be covered by an RRSP.

This study proved that many younger adults do understand the need for responsible retirement planning, but many of these people feel that an RRSP is simply an expense they cannot afford. The truth is that no amount invested is too small. The earlier you begin to save, the greater the gain in the future. Starting early in life allows more time for your tax deferred investment to grow.

How do you make your RRSP grow? The key is regular contributions and some strategic planning.

1. The maximum amount you could contribute in 2015 was $24,930. In 2016 the amount has increased to $25,370.
2. Starting to invest early in your career is the best way to ensure maximum growth.
3. Making a lump sum contribution in the beginning of the tax year provides a full calendar year of tax deferred growth.
4. If contributing a lump amount isn’t affordable in your budget, the next best option is fixed monthly contributions.
5. Finding the perfect RRSP plan to match your budget and goals is extremely important in the early stages. Even a small gain can pay large amounts at retirement age.
6. Couples can often save money on their income tax by taking advantage of spousal RRSP splitting. This provides a smart way of income splitting that will help with your taxes.
7. The later you retire, the better. Time is money, and is a key component of a successful RRSP strategy. Retiring at later age allows your investment more time to grow.
8. For many, borrowing money to maximize RRSP contributions is a savvy financial move. This ensures higher growth than making smaller contributions.
9. Make use of asset allocation, this is a great way to diversify any risk.
10. Work with a professional. An advisor is there to help you develop an actionable plan that will lead to success down the road. This will save you a lot of headaches and will lead to more money in your pocket.

At the end of the day, we all have different retirement goals. It may be hard to think about retirement in the beginning years of your career, but investing early can put you in a great position for the future.

Sometimes simple habits can help you save, such as ‘no-spend days’. It’s estimated that investing only six percent of your income while in your twenties can put you in a great retirement position. This rate increases to ten percent in your thirties and 18 percent in your forties. It’s never too late to invest and think of the future, but earlier is better.

Perhaps the biggest challenge to retirement planning is getting started. If you work for an employer with a pension plan, you are already saving money. Adding RRSP contributions will only help. Take advantage of employer matching RRSP benefits. Why turn down free money?

Our team is here to help. We’ve have years of experience helping people like yourself find a customized financial plan that works. Making an RRSP contribution is an affordable and responsible way to plan for the future.

Click here to view an infograph on ten ways to grow your RRSP – Providing strategies you may not have known about and could help you achieve your dream retirement.