‘PAC’ now to retire well
This program makes investing easy
It’s an undeniable fiscal fact: Filling up your Registered Retirement Savings Plan (RRSP) contribution room each year is a great way to maximize the size of your retirement nest egg. But, many Canadians have trouble coming up with a sizeable chunk of money as the contribution deadline looms (as it is now) – and as a consequence that contribution room goes unfilled and their retirement savings are diminished.
But, there is an easy solution: A Pre-Authorized Contribution Program (PAC), an easy way to invest – so easy you may actually forget you are investing – that delivers these significant financial benefits:
• Your regular contributions have longer to grow and thanks to the miracle of compounding, you add significantly to your retirement nest egg.
• You enjoy the benefits of dollar cost averaging – meaning that you buy fewer units of an RRSP-eligible mutual fund ( for example) when prices are high and more units when prices are low. Over time, this strategy reduces the impact of volatility and usually results in a lower average cost to you and the accumulation of more units.
To start PAC-ing, simply arrange with your bank to deduct a specified amount from your savings or chequing account on a regular basis that is contributed to your RRSP (or additionally or alternatively to a Tax-Free Savings Account or your non-registered portfolio).
You’ll be amazed at the longterm growth your PAC can deliver – here’s an example: PAC $250 into your RRSP each month and (at an annual compounding rate of return of 6%) you’ll have $243,628 of pre-tax assets after thirty years.* But if you wait until the end of each year to invest a lump sum of $3,000, you’ll only have $237,174. So by PAC-ing each month, you potentially add $6,454 to your retirement fund without costing you one additional penny!
There’s no doubt that a PAC can be instrumental to reaching your long-term goals, but it is only one element of a comprehensive financial plan that should also include such strategies as asset allocation, portfolio balance/rebalance, tax-reduction, estate planning and other strategies tailored especially for you. Your professional advisor can help you pick the PAC and financial plan that works best for you.
*The rate of return is used as an illustration only and is not intended to reflect future returns on investment.