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Start your RRSP, retirement savings early

(Special) – Now that the deadline for Registered Retirement Savings Plan (RRSP) contributions for the 2018 tax year has come and gone, many Canadians may be tempted to forget about their retirement savings until the deadline for the 2019 tax year rolls around next February.

Recent studies have shown that Canadians generally are having a difficult time saving for their retirement.

When you’re younger and just starting out in adult life and your career, saving is a low priority. You work, start to raise a family and maybe buy a house. You’re inundated with demands for your money — rent, a mortgage, living expenses, a car.

Then as you age and the prospect of retirement begins to appear on the horizon, you start to think about saving for your older years. Many people don’t start building their retirement assets until 10 or 15 years before they plan to retire.

As a result many Canadians are going into retirement without enough savings and income to fund the retirement they would like to enjoy.

The reality of the situation is that retirement saving and planning is a lifelong activity which should start early with a disciplined and structured process in place.

“A lot of people think they can manage their finances and retirement savings by themselves,” Brian Burlacoff, a financial adviser with Sun Life Financial in Toronto, said in an interview. “At first glance it looks simple but with a lot of options like the RRSP, Tax Free Savings Account, Registered Retirement Income Fund and others, it’s a lot more complicated than it may seem. That’s why it’s important to get a professional adviser involved early and start your financial and retirement planning early.”

One of the most important advantages of early planning is what Burlacoff calls the “eighth wonder of the world” — the power of compounding interest.

Here’s an example of compounding provided by Investopedia.

A 25-year-old who wishes to accumulate $1 million by age 60 would need to invest $880.21 each month assuming a constant annual rate of return of five per cent. A 35-year-old wishing to accumulate the same amount by age 60 would need to invest $1,679.23 each month using the same assumptions.

Ten years later, a 45-year-old would need to invest $3,741.27 each month to accumulate the same $1 million by age 60, almost four times the amount the 25-year old needs to invest.

When saving for retirement you can access the power of compounding and reap benefits later by starting early and putting aside money, even if only a little, regularly. This could include automatically withdrawing a certain amount from your paycheque into a separate account or, if you have one, into an employer sponsored pension plan, which may including matching contributions from the employer.

Many financial institutions offer RRSP loans at better rates to help people borrow to make contributions. If you get a tax refund you can use it to pay down the loan.

Many people wait until the first 60 days of the year to make their contributions. However, by contributing throughout the year you can increase growth and compounding.

You also may continue to contribute to your RRSP longer than you think. You can contribute up to and including the end of the year in which you turn 71. Once you turn 71 you have until the end of that year to mature your RRSP.

Even though you may no longer be able to contribute to an RRSP yourself, you are entitled to the tax deduction for your contributions to your spousal RRSP. And if you still are working at age 71 you will still generate RRSP contribution room for the following year.

“An adviser can help you cut through all the noise in the market and clarify your objectives, goals and put together a plan to help you achieve them,” Burlacoff says.


Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Copyright 2019 Talbot Boggs

Talbot Boggs , The Canadian Press

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