Anyone with some earned income can and should contribute into their RRSP. It’s never too early or too late to start contributing to your RRSP. If you’re in your twenties, time is on your side. Even with a small contributions of $50/month will add up over the course of the year, so you’ll likely end up with a generous return, but more importantly you’re saving for your retirement down the road.
Now is the time to plan ahead for years ahead. Any savvy investor or professional advisor will tell you to plan ahead, rather than make a lump sum last minute contribution. This way you’re saving throughout the year, and there’s no easier way to contribute to your RRSP fund than through automatic withdrawals. It’s setup automatically and you don’t have to worry about it.
So, in spirit of becoming a more organized RRSP contributor and planning ahead; I wanted to share six savvy tips to get better organized, supercharge your RRSP for the year ahead and years to come.
1. How about a raise?
One of the easiest ways to grow your savings faster and grow your RRSP is by taking advantage of a salary increase.
Rather than blowing your newly found money, why not direct it into your RRSP? You’re already making the most of your previous salary, so you won’t miss the new money. Another bonus of directing your newly acquired money to your RRSP is that it will prevent you from overspending.
2. Automatic Transmission
Be real with your self and get organized ahead of time. Make a promise to your self and dedicate some much needed care towards your future. Make the year ahead the one that you actually set up automatic savings plan to fund your investment account.
I love automatic savings simply because I never see the money, and every few months I go into my online banking to see the snowballed effect of automatic savings. Lastly, I’m never tempted to spend the money, because I never see the money.
3. Get your employer on board
If you ever wanted free money, this is one opportunity no one should pass up. If your existing employers offers a defined benefit pension plan, make sure you join. Sadly, if your employer does not offer such a plan, maybe it’s time to seek out an employer who does offer this.
If your employer offers a group RRSP plan, sign up NOW! If you’re already signed up, congrats, you’re taking advantage of free money. By having your employer on board and matching your contributions, you’re essentially getting free money and funding your retirement goals faster.
4. Mortgage vs RRSP
Should you pay off your mortgage first or continue funding your RRSP? It’s a question that has been asked many times. Most of us do both, we pay our mortgages and fund our RRSPs. Maybe you should contribute to your mortgage a little more, and here’s why; Compare the rate of return on your investments in your RRSP with the interest rate you’re paying on your mortgage.
Obviously you need to take into account the risk level into account, and I’m certain that the return on your mortgage will prevail. This is especially true with today’s mortgage rates, such as 2.99% fixed over five years. Most seasoned advisors will agree that the highest risk-adjusted rate of return will almost always be repaying debt. Just look at the interest rates you’re getting on savings versus the interest rates on borrowing. Which rate is higher? The answer is pretty clear.
5. Borrowed Savings
Or as called by most; “Forced Savings”. Sounds strange enough, but a lot of people borrow to save. This is especially true during RRSP season, and banks are loving the ones who come in to borrow to fund their RRSPs. This is called a “RRSP top-up loan”.
This strategy works well and the rates are not too shabby. I inquired about this loan on $5k. The interest rate was 3.25% over 12 months. Eventually I decided against it, simply because I didn’t want to take on a loan with other projects on the go for this year.
A top-up loan may be right for you, however be ware of this tricky strategy. If you can’t repay your loan back in 12 months, there is no point of you taking on this type of loan.