Your RRSP is screaming at you to take some action

During our working years, it is important to put money aside for retirement. For each person, this looks different. You won’t do the same as your neighbour, co-worker or sister-in-law.

In retirement, you may receive a pension from work as well as government benefits (CPP, OAS, GIS). To supplement this, it is up to you to create a fund, such as an RRSP or investment portfolio and make contributions over the years. Saving and investing is your responsibility.

The deadline for contributing to your RRSP for the the 2017 tax year is March 1.

After speaking with many retirees, they all say they are very thankful for starting and being diligent at saving and investing over the years. They have pots of money to draw upon to travel, purchase a new car, do renovations, and make gifts to grandchildren or charitable organizations.

If you are 20-something or 60, it is important to take action.

RRSPs are especially attractive to those people who are employed and receive T4 income. You can take advantage of a nice tax deduction when you contribute money to an RRSP or Spousal RRSP. RRSP or spousal RRSP? All contributions to either plan (your individual RRSP or Spousal) are a tax deduction for you. Whether you contribute to your RRSP or a spousal is dependent on your current income and predicted retirement incomes.

In Canada, income taxes are paid based on how much income you earn. The higher your income, the higher percentage of income tax you pay. In general, a couple with one annual income of $70,000 pays more income tax than two people with annual incomes of $35,000.

Choose to contribute to a Spousal RRSP if your spouse will have very low or no income in retirement. This will spread your retirement income over two people and likely, you will pay less income tax between the two of you.

This is smart planning and you can choose accordingly. Annual or monthly contributions? This is a personal preference. Some say monthly contributions are best because of ‘dollar cost averaging’ and others say annual.

Dollar cost averaging relates to investing. This means that you set up an RRSP with pre-authorized debit arrangement. Every month, a certain amount will be taken out of your bank account and be deposited into your RRSP or Spousal RRSP. The idea is that you invest every month without having to time the market. Some months, the market will be lower and other months, the market will be higher.

Choose either annual or monthly contributions depending on how you like to budget your money. For most, monthly is the easiest. There is no ‘thinking’ and ‘remembering’ to do. You will be surprised at how your RRSP grows.

GICs, equities, mutual funds or all of the above?

What risk tolerance are you? Can you sleep at night if the markets rise and fall? Or do you prefer investments that grow slow and steady and may not have the same returns as high risk funds? GICs and bonds are more slow and steady, funds and equities rise and fall with the markets.

Your personal risk profile depends on your age, assets, goals, ability to handle fluctuations, etc.

Before investing, complete a risk profile questionnaire with your advisor or financial institution. Redo this questionnaire every five years or if there has been a big change in your situation. Your risk tolerance and investment selection may change over time. What next? Now is the time to start or contribute to your RRSP. There is a deadline – if you contribute to your RRSP before March 1, you can make this contribution tax deductible in 2017.

At this point, you can also be contributing now for your 2018 RRSP. This is the best — you are further ahead and take advantage of more of the benefits that RRSPs offer.

Lisa Jaffary is a life insurance agent and financial adviser with Points West Insurance Services in Kelowna. Email: lisa@pointswest.ca