Last call. Tick Tock. You can make an RRSP contribution today and use that contribution slip when you file your 2019 taxes. It’s RRSP contribution deadline day. Of course it’s called a first 60-day contribution. You can also carry that forward to be used in a future tax filing.
Here’s a good post from savvynewcanadians on that carry forward rule, plus other RRSP considerations. You would balance off your potential for a tax return today, vs the return you may receive in a year when you have greater income. Of course, the higher your income level, the greater potential for tax savings.
Double up on compounding.
That said, you also have the option to invest any tax return monies. There’s the potential of compounding in the near future. Given that the markets are taking a tumble, there may be the added benefit of investing at lower prices. I like the idea of using your RRSP tax return monies to fund the TFSA. That’s a turbo-charged boost strategy to play some serious retirement portfolio catch up.
There’s nothing like that one-two punch of the RRSP and TFSA. That can provide some incredible opportunities when you create your retirement funding plan. There can be some strategic moves as those buckets of monies can work in tandem with government monies such as CPP and OAS and other pensions. You might also be lucky enough to have taxable accounts and a defined-benefit pension.
And don’t forget that if you have a group plan at work, take all free monies from your employer. The first 60-day contribution might simply provide an opportunity for you to top up or max out your RRSP contribution.
Invest on a regular schedule. Instead.
And that group plan mention perhaps offers the most important consideration on March 02. How did we get here? Why do investors procrastinate and wait until the last day? I can guarantee you that my friends in the financial industry have been swamped over the last week and more. Today will likely be the busiest day.
Set up an automatic investment plan.
Make wealth building a good habit. Make it as common as brushing your teeth.
You’ll need the regular free cash flow. That starts with doing a budget and a personal cash flow statement. How much are you spending on Americano’s and bought lunches? Here’s one of my favourite Cut The Crap Investing posts …
And on the expensive coffee habit, I saw a reporter on TV last night confess that she spends $4,200 annually on coffee. She did not know that until she tracked her spending. Throw in the additional $100 per month on her lovely and long eye lashes, and well she’s off to a good start. I have a feeling that she will get to $1o,000 annual in a (weekend trip to New York minute). If she invests the money in a sensible low-fee manner, she’s going to be rich one day.
How much you spending?
I think it’s quite ‘easy’ to build wealth. And there are not very many good excuses for the gainfully employed. As Nike would write, you either saved today, or you didn’t.
We need to step it up.
Our friends at BMO released their annual study on RRSP habits. That’s a quick and good read on RRSP contribution deadline day.
- 69 per cent of Canadians now hold an RRSP account, compared to 60 per cent last year
- Average amount held in RRSP accounts hits $111,922, up by almost $10,000 compared to 2018
- On average, Canadians plan to retire at 62 – but most are unable to estimate how much money they would need to retire comfortably
Good luck with that retire at 62 stuff. We’ll factor in some opportunity for future portfolio growth but you really think you can retire on $15,000 annual? You might have that $200,000 RRSP and a reduce CPP.
But that’s OK, those types of studies then go on to reveal that the respondents have no idea how they might retire. They have no idea how much it takes. But if we ask a question … we’ll get an answer.
Here’s the national scorecard.
Of course this is the average of those who do contribute. Most do not make a contribution, at all. This from a Rob Carrick Globe post looking at CRA data.
Twenty-nine per cent of tax filers contributed to an RRSP in 2000, compared with 22 per cent in 2018. The 2009 launch of the tax-free savings account has something to do with this trend. In fact, the number of RRSP contributors had yet to recover to the 2008 level.Globe, March 3, 2020
Of course, I think this is a missed opportunity, Canadians should be going at wealth building in double-barrel fashion, and more.
And certainly the wonderful TFSA is being put to use.
That’s the headline from this Ipos study.
The post does go on to mention that the TFSA is often used for short term goals and emergency funds. It’s not necessarily sticky monies, used for long term wealth building for retirement. That’s where the RRSP can shine. The behaviour is often more important than the math.
Not everyone can be like Mark Seed at myownadvisor who celebrated the move of his TFSA above that $100,000 mark. The TFSA will play a major role for Mark and his wife’s retirement funding plans.
Be like Mark.
If you use the TFSA as an emergency fund, build a separate TFSA account for that purpose. You can hold as many TFSA accounts as you like, and at separate institutions. Just be sure to keep track of your TFSA contribution levels. You might hold a TFSA long term investment account and an emergency fund (in guaranteed savings). Typically it’s best to build your emergency fund to the required level, then move on to the long term investing.
The RRSP basics and takeaways.
- Use it
- Contribute regularly
- Make good use of any tax returns
- Invest for growth within your risk tolerance level
- Keep your fees low
- Seek good advice from a retirement specialist
On point 6, we don’t want to use our portfolios to fund the advisors’ retirement, you might consider an advice-only planner.
If you do not have a pension (like most) you need to take care of yourself. It’s not that difficult. We should all retire comfortably. And that retirement will certainly look different for each and every one of us. Some of us will want and need a lot of income. Many of us will get by just fine with modest income.
If you’re young start now. Clear high interest debt first. Don’t let ‘I don’t have enough’ deter you. Just start building wealth on a regular basis. Let time be your best friend.
If you’re in your 40’s, 50’s, 60’s – pick up your game.
If you want advice and managed lower-fee portfolios you might contact one of the Canadian Robo Advisors.
Thanks for reading. Happy investing! Happy RRSP contribution deadline day.
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