Tick, Tock, The RRSP Clock is Ticking!!

RRSP-Contribution-ClockRRSP Deadline is fast approaching… with only a few days to go…Have you made YOUR contribution??

Making an RRSP contribution can be a very critical thing for most people and this is the season where some people are scrambling around to make that last minute contribution. For those who are not aware, the deadline is February 29, 2012. I will say that it is important to contribute to your RRSP’s, but it is certainly not the best decision for everyone. If you are unsure I would recommend that you speak to a financial advisor and possibly an accountant to go over your personal situation and finances to determine what the best option for you is.

How much do I contribute to my RRSP? This is always a case by case, situation based answer. One thing I can tell you is that the maximum contribution limit of 2011 is 18% of your last year’s earned income up to a maximum of $22,450. However, if you have not used all your contribution room from previous years, you can carry forward the unused portion. Your best bet is to look at your NOA (Notice of Assessment) from the government as it will show you your contribution limit.

Like I mentioned earlier contributing to your RRSP is important, but may not be the best option for you. The benefit of putting money into an RRSP is that you have a tax deduction as well as tax deferred growth on your investment. Making an RRSP contribution is especially wise if it will mean putting you into a lower tax bracket. To get more information on how to maximize your tax benefit click here http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html.  There are other options to grow your investments, and supplement your savings, such as TFSA (Tax Free Savings Accounts). These are tax sheltered investments and if you need to withdraw the funds prior to retirement it is much easier.

The best long-term strategy is to “Pay yourself first” as David Chilton outlines in his book The Wealthy Barber*. Rather than coming up with one large lump sum in February (often a time of year where money is not flourishing as many are still paying down Christmas debt) you will see greater reward in setting up automatic transfers to savings, or to your RSP account. You will want to ideally set aside at least 10% of your pay…to pay yourself first.

Not only are you in a better position because you don’t have to find this lump sum of cash, you have also benefited from “dollar cost averaging”. Basically, you are in a position where you have bought investments throughout the year, getting them on the highs as well as the lows. You have also started the compound effect.

Here are a few questions I suggest you should ask yourself, and go over annually to make sure you are ready for retirement:

  • What age would you like to retire? You need to find that magic # so you can determine if you are on track towards meeting your retirement savings goal.
  • Estimate annual expenses during retirement. (Typically 80% of current income)
  • How would you like to spend your time during retirement? Will you be travelling, golfing, relaxing?? How you envision your retirement will play a role in how much money you may need to start saving now…for the future!
  • Determine your retirement income sources— RSP contributions, Pensions, Government?? We often wonder if government sources will still be around, so I always suggest planning for them to not be around, and if you get some it’s a bonus!
  • How much have you started saving for retirement?
  • How much will you need to retire comfortably?

Time flies by, as we all know, and if you don’t take some time to stop and think about these things….you simply will just forget! Life is crazy busy, but take some time to answer these questions or even go speak to an advisor that can help you assess your personal situation. It’s always good to know if you are on track, and if you are not, then hopefully you can devise a plan to help get you on track!!

Cheers to wealth and happiness!!

*The Wealthy Barber by David Chilton ISBN #0773762167



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