Benefits of Year-round RRSP
For many Canadians, an RRSP is a last-minute scramble. The result? Many
people end up contributing only a fraction of what they should. Their
investment decisions are hurried, and they pay more in taxes.
Why contribute year-round?
There are many reasons why you should make year-round contributions to
your RRSP, rather than wait until January or February. By contributing
regularly, many people find they end up putting more money aside. That
significantly cuts their tax bill. As well, they are often able to file
their tax forms earlier, because they haven't waited until the end of
February to make important RRSP decisions. They get their tax refund
cheques sooner. Last-minute RRSP contributors end up making hasty
decisions and investing in products that may not be right for them. In
contrast, those who make regular contributions have the time to think
about their investment goals, consult a financial advisor, and develop a
financial plan. They are more likely to have properly diversified
portfolios, and are probably better able to weather market volatility. A
year-round strategy is a financially sound and less stressful way to get
the most out of your retirement savings.
Making regular contributions
If you make regular contributions, your money goes to work sooner and
can produce higher returns. For example, if you contribute $100 to your
RRSP each month, you'll have a retirement nest egg of $207,929 after 30
years (based on an annual return of 10 per cent). But if you invest the
same amount over the same time in yearly $1,200 lump sums, you'll have
only $193,220. By contributing regularly to the investments in your RRSP,
you also avoid the pitfall that snares many small investors ... "buying
high and selling low." Your costs are "averaged" across the year, and
you are not as vulnerable to market downturns.
Finally, year-round contributors develop the right habits. They
periodically review their portfolios, reassess their goals, and make
adjustments as needed. As a result, they are often more prepared when
new investment opportunities arise. Start planning and making next
year's RRSP contribution now. I can help you make the right decisions.
Note: Any reference to Investments, Investment Planning, Financial Planning, Markets, RRSPs, RRIFs, Locked in accounts,
Non-registered accounts or RESPs refer to Segregated Funds.