It’s the end of February: have you contributed to your RRSP yet? The March 1 RRSP contribution deadline is looming, and if you haven’t contributed yet, you may be beginning to panic. How much do I contribute? And what to invest it in?
Before making a rash decision, remember that most important thing is that you get your money into an RRSP account. There is no rule that says you have to invest it upon deposit. Don’t force yourself into a quick decision, and buy something you aren’t comfortable with or don’t understand.
Check your notice of assessment from last year’s tax records, to be sure you know how much room you have to contribute. The last thing you need is to over contribute and start dealing with penalties. If you have time, talk to an accountant or financial adviser about how much you should contribute. If your optimal contribution isn’t possible, contribute as much as you can afford, without straining your day to day budget.
If you already have an RRSP account open from a previous year, you might be able to quickly and easily deposit cash right into your RRSP account via online banking, saving you the time and hassle required to set up an appointment.
Once the cash has been deposited, contact your adviser and schedule a meeting in the coming weeks, to decide when and how to invest. Working at a relaxed pace allows you to consider all options and make a choice that suits your needs and your risk tolerance.
Also, another point to remember: if you are strapped for cash this year, but still want to contribute to an RRSP, you can transfer other investments into an RRSP account – provided they are eligible.
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Provincial finance ministers have agreed to look into a new national pension plan, aiming to find a national solution to improve the incomes of all Canadian retirees. The plan, likely to be voluntary, would assist workers without an employer sponsored pension plan.
(Read Provinces team up on retirement income in the Globe and Mail.)
The workforce has seen a shift in the past few decades, from a time where a worker spent most of his or her life with one employer and was then “taken care of” during retirement. Today’s workers change jobs more often, and are often left to fund their own retirement through RRSPs or defined-contribution pension plans. Life expectancy has also increased, leading to a need to fund longer retirements. All these factors lead to many Canadians short on cash through their retirement years.
Whether or not the provinces agree to a new pension plan, what it will look like and when it will come into effect are still up in the air. In the meantime, Canadians need to look closely at their retirement needs and ensure they are well informed of their goals and how much savings they will need to achieve them.
It takes time to save enough for retirement. It’s important to start planning as early as possible. Otherwise, you may end up with a lot less money than you need to live the way you would like after you retire. Also, remember that it is never too late to review your retirement plan. Remember the old Chinese proverb: “The best time to plant a tree was twenty years ago. The second best time is now.”
Follow these simple tips to get started with a retirement plan:
- Look at how much time you have. If you plan to retire in 10 years, your plan will be different than someone with 30 or more years left to save.
- Consider the lifestyle you want at retirement: will you stay in your current home, or maybe downsize? Do you intend to travel, volunteer, or even work part-time?
- Set clear goals. Figure out how much money you’ll need when you retire, and make that your savings target. You can work this out with a financial adviser, or use one of the many calculators found online to estimate. The Investor Education Fund provides great tips.
- Consider your other sources of retirement income. What can you expect from the Canada Pension Plan? Do you have a retirement savings or pension plan at work? Deduct this from your savings estimate.
- Don’t put all your money into one type of savings. Diversify. Spread your money around into different types of investments. If one way doesn’t work out, other ways may be better.
- Protect yourself and your retirement savings. Invest smart. Don’t do things with your money that you don’t understand. And always remember, if an investment seems too good to be true, it probably is.
- Track your progress every year. Discuss with a financial adviser and change your plans when and if you need to.
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