Your RRSP is your future well-being, says expert



Courtesy of RBC


It might be hard to think about your future 30 years from now, let alone save for it. But Lee Anne Davies, the head of Retirement Advanced Strategies at RBC, says it’s crucial to begin thinking and investing as early as possible.


Because this year is a leap year, Davies says Canadians have an extra day to either make a contribution to an existing Registered Retirement Savings Plan, or to open a new one, if you would like it to be applied to your 2007 tax return.

If you’ll be making your contribution in a bank branch, you have until the branch closes on Feb. 29, 2008. If you’re making your contribution online, you must make it by midnight of the same day.

Davies says there are many ways you can contribute to an RRSP. If this is your first time, visit a bank branch and open one. If you’ll be contributing to an existing one, visit a branch, or you can do it online, if you’ve set up online services.

One tip Davies offers is to contribute regularly. She says if you spread out your deposits over time, you can take full advantage of market rates. This is much easier than making just one contribution a year and trying to time it with the rates, especially with the recent volatility of the market. “You will benefit from the movement of the market,” she says.

Davies also suggests investing early. “If you invest early, you start to get into the habit of paying yourself with your RRSP,” she says. For example, if a woman at 25 contributes $1,800 annually over nine years, at 65, she will end up with $280,000 at an eight per cent interest rate. If a man begins investing $1,800 over 32 years at the age of 35, he will end up with $261,000 at 65. This, Davies says, is because “you’ve lost 10 years of compounding.” Any type of compounding interest invest­ment will earn you more money the longer you have it, she says.

The appeal of an RRSP is also a reason to invest, she says. Aside from an income tax deduction, the Compounded Tax Sheltered Growth is appealing to Canadians. This is when your RRSP grows; the money gained is not considered income growth.

To find out how much you can contribute each year, check your notice of assessment that comes with your tax return, or you can visit the Canada Revenue Agency website at

Davies says Canadians should contribute to an RRSP because it’s your future well-being at stake. “You want to create a solid future for yourself and your family.”

Another reason, she says, is because, previously, people worked for many years at a company that created a pension plan. Nowadays, she says, people are working for lesser years or are being employed in jobs that don’t have pension plans.

Finally, she believes Canadians should take full advantage of the government’s offerings of tax deductions and tax sheltered growth. When you file your income tax, she says, any contributions you’ve made over the year is taken off your taxable income. This means, she says, the less taxable income you have, the less taxes you will have to pay.