It’s RRSP time – are you ready?
Whether or not you’ve been contributing to an RRSP regularly, you’ll want to direct your attention to your strategy for 2014. Be sure to contact your advisor to review your plan for the coming year. Your advisor will help you weigh the options and make the most of your cash flow – how much toward your RRSP? your TFSA? your emergency fund? how much against debt. What’s the impact if you invest in an RRSP and use the tax refund for your TFSA or pay down debt …
If you have not yet contributed to an RRSP for deduction against your 2013 taxable income, you still have time. CRA provides a grace period of 60 days. This year’s deadline is Monday, March 3, 2014. If you can avoid waiting until the last minute, you’ll be more likely to make decisions that reflect your investment goals and to meet the deadline.
With the many investment choices available, RRSPs are still one of the best ways to invest and save. You won’t be taxed on the money you shelter in an RRSP until you take it out, and you can put away as much as 18% of your previous year’s income to a maximum for 2013 of $23,820. The limit for 2014 is set at $24,270.
To help you get started, here are some resources.
We’ve created a retirement savings calculator ‘kit’ for you that includes the following calculators:
Retirement Income: Use this calculator to determine how much monthly income your retirement savings may provide for you in your retirement.
Retirement Nestegg: Do you know how much it takes to create a secure retirement? Use this calculator to help determine what size your retirement nestegg should be.
Retirement Planner: Quickly determine if your retirement plan is on track – and learn how to keep it there.
RRSP Loan: An RRSP loan can be an excellent way to jump start your retirement savings. Use this calculator to see how an RRSP loan could help you increase your retirement savings.
Tax Free Savings Account: This calculator is designed to help compare a Tax Free Savings Account (TFSA) to a Registered Retirement Account (RRSP) and a regular savings account (taxable).
Taxable vs. Tax Advantaged Investments: This calculator is similar to the Tax Free Savings Account but provides more detail.
10 points to consider for your RRSP planning.
There is no time like now. It’s never too late to invest in your future. If you haven’t started saving, start now. In addition to the money saved, the RRSP contribution is deductible in the year in which you make it. Your tax bill will be reduced and depending on your situation you may receive a tax refund.
Invest early. Investments registered in your RRSP grow tax-free. Time gives the investments the opportunity to grow. Harness the power of compounding growth.
Invest often. Regular (monthly, biweekly) contributions instead of one lump sum at the RRSP deadline can be very beneficial. Investing smaller amounts at regular intervals makes it easier for you to save. Saving becomes a habit; you pay yourself first. Pre-authorized chequing (PAC) plans (monthly, biweekly) take care of your contributions all year long providing greater long-term returns, with no action on your part.
Take advantage of dollar-cost averaging. By investing smaller amounts regularly into investments that fluctuate in value, you will catch both higher prices and lower prices. This allows you to average out your cost and can reduce your investment risk significantly. Some investment firms offer specific DCA funds which manage the movement of your cash into the markets in a controlled way over a period of time.
Consider transferring investments held in your Tax Free Savings Account or a non-registered account into your RRSP. In most cases you can transfer the investment as is (“in kind”) as long as the investment is eligible to be held in an RRSP.
Maximize your RRSP contribution. Take advantage of your opportunity to defer taxes and save for your retirement. If you don’t have the cash available, we can help you obtain an RRSP loan.
Understand your risk tolerance and diversify. If you haven’t taken the Finametrica Risk Tolerance questionnaire, you can sign in and take it now. Based on your risk profile we can help you build a diversified portfolio that you will be able to commit to for the long haul.
Think long-term. Short-term market volatility is not a good indicator of how your investments will do over the long term. Click here to see the historical returns that we use in our financial life planning.
Work closely with your advisor. Your advisor is up-to-date on the latest investment strategies, understands your vision for the future and has the planning expertise to help you achieve your life vision.
Don’t wait until the last minute! To meet the Monday, March 3, 2014 deadline we should be starting to discuss your RRSP strategy now – investment decisions shouldn’t be rushed.