Dan White
The RRSP deadline for 2015 taxes is February 29. That being said, why should you put your hard-earned money into an RRSP?
Well, there are three ways to fund your retirement: company pensions, government pensions, and your savings. The only one you have any real firm control over is your savings.
The great thing about RRSPs is that you defer the tax bill while you are earning now and then pay a reduced rate when you draw the funds out at retirement, as long as you are making less at that time. Every dollar you put into RRSPs, up to your limit, is deducted from your earnings for that year, so you have a lower income to pay taxes on. SUGGESTION: Put all or part of the income tax rebate into RRSPs for the next year and get a jump-start on your contribution and earnings.
If you have a company matching plan, where the company will put money into a plan for you as long as you contribute a certain amount, I would advise you to contribute the limit that you can, to get the extra contribution from your employer so you gain from their contributions as well as getting the tax break.
Timing is Important
RRSPs can be good for all ages but the younger you start, the better you can expect to do. Compare these results for a person who contributes $5,000/year for ten years, gets 8% return on investment and all earnings are left in the account:
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A person starts at age 25, stops at 35 and leaves the money in until age 65 and they will have around $787,000
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Same person starts at age 35 and stops at 45 and leaves the money in until age 65 and they will have around $364,000
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Same person starts at age 45 and stops at 55 and leaves the money in until age 65 and they will have around $170,000
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Same person starts at age 55 and stops at 65, they will have around $78,000
If you put the same $5,000/year away each year from age 25 to age 65 at the same rate of return, you would have around $1,300,000 saved.
What can you invest your RRSP dollars in?
You can invest in almost any type of investment vehicle: stocks, bonds, GICs, mutual funds, money market funds, etc. Just determine what you feel most comfortable with and what return you want to get; a financial advisor can assist with that.
Dan White is a Meaford-based Life and Health Insurance and Mutual Funds Advisor with Desjardins Financial Security Independent Network. If you have questions about financial issues that you would like Dan to write about, send him an email at: dan.white@dfsin.ca
