So here we go again. You’re just days away from the RRSP deadline and you’re scrambling to make a contribution.
Thanks to online banking and investing, February isn’t as busy as it used to be at bricks-and-mortar banks in the hours leading up to March 1. And less than one quarter of Canadians even contribute to their plans, continuing a downward trend over the last decade due in part to the creation of the Tax Free Savings Account and in part to record personal debt levels.
But TD financial planner Shelley Smith says there’s still a last-minute rush to get contributions in right up to the very last day.
She finds it funny that some people “will spend hours or even days researching smartphones and mobile phone plan providers before deciding. But a major financial decision like planning for your future should take the same level of commitment, if not more.”
Not to worry, though. She has tips for all the procrastinators.
“The first step to making good RRSP decisions is to figure out if making the contribution is the right course of action in the first place,” she says.
She recommends working with a financial planner to decide if a contribution makes sense for you and to help make recommendations on where to invest the money.
Other keys to remember
Know your contribution limit. For those in need of a quick response, the Canada Revenue Agency has mobile apps to help you gather information quickly and securely. If you don’t have access to apps, check the “available contribution room for 2016” amount found on the RRSP/PRPP deduction-limit statement on your latest notice of assessment (or notice of reassessment), or call the Tax Information Phone Service (TIPS) line at 1-800-267-6999.
Your contribution is separate from your investment decision. So you can get your contribution receipt now without rushing your investment decision. RRSP savings accounts and money-market mutual funds are quick and penalty-free investments where your contribution can sit temporarily while you decide if you want to put it in GICs, bonds, stocks, or other investments.
If you’re too busy, your spouse can hit the bank for you. As long as he or she has your power of attorney. But most banks and financial institutions have extended hours to accommodate RRSP procrastinators.
Need more to contribute?
Consider an RRSP Loan. You can invest the money now; once your tax refund is in, you can use it to pay down the loan. But you’ll need to be disciplined with your payments in paying off the rest of the loan. Paying interest for longer than a year will eat into your returns.
Use money sitting in a low-interest savings account or a cashable GIC. Then use your refund to build back your savings, or consider contributing to your tax-free savings account.
Put big purchases on hold. Whether it’s a trip down south or a new car, postpone that expense for a month or two and put the money into your RRSP. Use your tax refund to help fund your splurge at a later date and feel great knowing your retirement savings are growing.
Don’t time the market. Successful market timing requires two correct decisions: when to get in and when to get out. Guessing right once is a 50/50 proposition. Guessing right twice drops the odds to 25 per cent.
Get on top of it for next year. Trying to put together investment money before the deadline can be stressful, especially after the holidays. So set up an automatic savings plan, even if it’s only $50 or $100 a month, and you can take comfort in funding your future automatically.
“Some of my clients who are not saving enough for retirement say they can’t afford to contribute because there are too many demands on their money, while more of them say they’re saving for other priorities,” Smith says.
“The fact is, saving doesn’t have to be complicated — or last minute.”
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