As an investor working to build your portfolio, you face many day-to-day demands on your money. It’s not always easy to determine what your financial priorities should be, or to stay committed to them – especially when markets are volatile.
There’s one priority, however, that should always be at the top of your list, explains Lisa Li, a Mississauga, Ontario-based CIBC Imperial Service financial adviser: Contributing to a Registered Retirement Savings Plan (RRSP). With its powerful combination of tax deductions and long-term, tax-sheltered growth, the RRSP is still one of the most effective ways for most Canadians to build the financial security they need in retirement.
Li shares the following five reasons to stay committed to your retirement plan:
Time and tax sheltering. By contributing early to your RRSP, your savings can grow and compound over a longer period of time. Your financial adviser can help you determine how best to allocate your savings between non-registered portfolios and tax-sheltered RRSPs in order to achieve greater tax savings.
Avoid the catch-up crunch. Many people take advantage of the RRSP “carry forward” provisions, fully intending to make up the difference next year. Delaying your contribution for even one year, however, can have a significant effect over the long term. If you don’t have the ready cash to contribute or catch up, you may be able to draw on non-registered savings, make an in-kind contribution, or borrow at a low interest rate. An even better solution is to make sure you reach your maximum contribution each year by committing to a Regular Investment Plan that automatically invests a specific amount into your RRSP on a regular basis, taking advantage of dollar-cost averaging.
Tax savings. If you’re in the highest tax bracket, you’ll generate a tax benefit of about 45% on the amount you contribute to your RRSP, depending on the province you live in. If you get a refund, you can use it to pay down debt, fund a major purchase, or roll it right back into your RRSP.
Low market values, low interest rates. With current low prices, you may be able to “buy low” and get into the market before the next upturn. In addition, lending rates remain low, which can help you reduce your cost of borrowing if you need help to maximize your RRSP contribution or make use of carry forward contribution room.
Secure your own future. You can’t control world economic events or market behaviour. You can help ensure that your retirement is financially secure by contributing regularly to your RRSP.
In today’s competitive environment, you have more investment choices than ever. A financial adviser can help you tailor your RRSP portfolio to meet your specific needs.
This article is intended to provide general information and should not be construed as specific advice.