We’ve put together some of the most common tactics when it comes to planning for retirement using a Registered Retirement Savings Plan (RRSP). And while there is still time to plan before the March 1st contribution deadline approaches, why not add some coverage to the topic to calm the collective anxiety around RRSP contributions months before the deadline?
Whether you’re well into your retirement savings strategy or you’re about to get started, here are a few best practices we’ve put together for RRSP contributions.
Know your contribution room
You can contribute up to 18% of your income to a maximum of $26,230 for 2018. Your contribution room accumulates over time so if you haven’t maxed out your contributions in the past, you’ll have even more room available. RRSP contributions lower the income you pay tax on. When your income goes up, so does your personal tax rate. So, if you’re in a higher tax bracket, consider putting your money into an RRSP to reduce taxes.
As a result of increasing your RRSP contribution amount, can also boost your income tax refund, which you can use you to pay off debt. High-interest debt is a common financial problem for Canadians, we recommend checking out this credit card guide to understand tips to pay off your high-interest debt. Remember, unused RRSP contribution room from each year can be carried forward and leveraged at a more advantageous time (i.e., when you’re earning more).
The annual contribution deadline for RRSPs typically lands on the 1st of March. You can always check the Government of Canada website to confirm contribution deadlines. This year, the RRSP contribution deadline is March 1, 2019. This means this is the last day you can contribute to your RRSP and have the deduction count for the 2018 tax year. Contributions made during January and February 2018 don’t have to be claimed against the 2018 tax year. If you want to make a contribution now or save part or all of the deduction for 2019, you are free to do so!
Create a regular savings routine
Setting a budget for yourself that includes regular contributions to your RRSP does wonders when it comes to reducing financial stress. How? With wealth firms like Nest Wealth, you can actually set up regular contributions to your RRSP tied directly to your pay cycles. That means your contribution amount is automatically deducted from your pay. It’s easier to “forget” to contribute to your retirement when you physically have to move your money to and from accounts. Recurring contributions makes saving effortless (and you won’t have to remember a thing!).
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Remember that time really does matter
As the obvious financial professional would point out, your time horizon matters. As a younger investor, the earlier you begin setting money aside and into a savings vehicle, the more savings potential you’re creating thanks to the powers of compound interest. The younger the investor, the longer the time horizon for retirement and the more years to generate savings and to spend adjusting to the market—putting younger investors in a better position to tolerate market risk and recover from short-term losses in the market.
That’s why when you’re considering an RRSP, it’s best to sit down with your bank and or wealth management professional or firm and discuss your time horizon. At Nest Wealth, your portfolio is curated based on your time horizon and risk tolerance to ensure we can support your personal goal with the right portfolio.
Chasing returns and trying to time the market is not only really difficult to do, but it’s actually not recommended. And we understand that short-term losses due to market dips and volatility can cause anyone to panic. If you have already made the decision to invest in RRSPs, stay confident in your decision to think long-term!
Break through the noise. You made a strategic plan to invest the money you chose with the time horizon you have planned. Even on days when you’re re-considering your strategy, it’s always recommended to focus on your long-term goals.