Investing in your RRSP is generally a safe bet, but should you put in a little bit every month, or deposit a lump sum ahead of the March 2 deadline?
“That type of conversation is something that we have with quite a few of our clients,” says Lee Ann Davies, head of advanced retirement strategies at the Royal Bank of Canada. “One of the things we’re always interested in talking about is getting into the habit of paying yourself first.”
Before you pay a salesman to give you a brand-new television, or pay a cook to make you a restaurant meal, pay yourself by socking a portion of your earnings into an RRSP. Most banks have systems set up where you can have a set amount of money automatically transferred from your savings account into your RRSP.
“You don’t really notice that your money is being contributed to your investment because you just get used to that amount being gone.”
In the current volatile market, Davies says regular RRSP investing gives you the advantage of “dollar-cost averaging.” You can buy more when it’s down and when it’s up, you buy less but receive the advantage of the growth on your existing investments.
There are situations in which a lump-sum deposit makes sense, Davies says. She notes many people receive annual bonuses from their employer, or get paid on commission.
“It’s also human nature — that tendency to want to procrastinate. That’s where a professional adviser is helpful,” she says. They can give you solid advice and act as a financial coach, encouraging you to contribute early and build toward long-term goals.
So invest regularly and when a windfall comes your way, throw that in as a lump sum. That may be best placed in your RRSP, or in other investments.
Davies says the question of how much you should put away depends on each person. “It comes down to your life stages, what’s happening within your own family. People have all sorts of obligations, especially if they’re in young families.”
Mortgages and RESPs may take precedence over retirement savings when you divvy up your money. A financial adviser can help provide a “more holistic” view of your situation and find a monthly amount that makes sense for you, she says.