How to make your RRSP perform like an athlete
The 23rd Winter Games are just around the corner and so is the deadline to make contributions to your Registered Retirement Savings Plan (RRSP). While athletes have been hard at work for the past 4 years preparing for this massive event, have you been as diligent in preparing for the RRSP deadline?
If not, have no fear. Here are some tips you can take from pro athletes to ensure you’re ready for RRSP season.
But first, what’s an RRSP?
A registered retirement savings plan is a government-approved savings vehicle set up to help Canadians save for retirement with tax perks. These accounts can hold a number of investment types including stocks and bonds, Guaranteed Investment Certificates (GICs), mutual and index funds, gold and silver, among others. First introduced in 1957, RRSPs can help reduce the amount of tax a person is required to pay on their annual income and deposits grow tax-free as long as the money stays in the account. Of course, there is a limit to how much money you can deposit to take advantage of these benefits. The amount you can contribute to your RRSP is 18% of your earned income for the previous year, up to yearly maximum.To take advantage of these tax breaks, always make sure to meet the deadline for contributions (note to self: this year it falls on March 1st).
Now, let’s get to those handy tips to build your RRSP strength and conditioning.
Training / saving year-long
So what do RRSPs have in common with the Winter Games? For starters, training for the Games and saving money in your account both take discipline and require diligent training. An athlete trains several times a week, year-round leading up to the Games – especially in off years. They don’t wait until the very last minute to make sure they’re in peak physical form.
You too, can practice with the same discipline. While it may seem easier to only worry about contributing days or weeks before the deadline, training yourself to save on a regular basis ensures you’re saving well in advance. While daily or weekly deposits might be excessive, it’s a good idea to make bi-weekly or monthly contributions.
Emulate habits of successful athletes
Succeeding at the highest level of athletic competition requires the strictest of habits and, more importantly, the ability to stick to them. That means early morning wakeups, skipping desert, and two-a-day workouts.
Luckily the habits required to take advantage of your RRSP don’t require as much willpower.
A great starting point is to commit to a regular payment schedule. A good rule of thumb is to start small and allot 10% of each paycheque to your RRSP.
Another tip is to set up automatic payments. This way, transfers directly from your main account to your RRSP account happen each payday and are taken care of.
Of course, 10% of each paycheque will leave quite a bit of room to contribute to your plan. Let’s look at the math for the average Canadian.
According to the latest Statistics Canada employment figures, the average Canadian makes $51,000 per year. Using an online payroll calculator, an Ontarian making the national average income would take home $1,519.97 after taxes bi-weekly.
With a 10% annual RRSP contribution, that would equal to a monthly contribution of $303.99 or $3,647.93 per year. Not bad. Not bad at all.
But with 2018’s RRSP dollar limit set at $26,230 (not including room you’ve carried over from previous years), there’s still a lot of space to make extra contributions. So where can that money come from? This is where some additional good habits can help you maximize your contributions.
If you earn any bonuses, get into the habit of contributing some or all of those lump sums to your retirement savings. Birthday money? Contribute it to your account as well.
And perhaps the most important – and, indeed, most difficult -- habit to get into is to avoid simply spending that extra cash from your tax return as a result of your RRSP contributions. It’s not unheard of for the average Canadian to receive tax returns to the tune of a few thousand dollars. That kind of windfall is tempting; shopping sprees, a shiny new car, and other big-ticket purchases are all very enticing. But getting into the habit of re-investing that tax return into your RRSP account will go a long way to growing your retirement fund.
The payoff
When well-trained athletes strap on their skis, take the first faceoff, or hurtle themselves down the bobsled track, they already know the hard work is done. They’ve put in countless hours of gym time, followed a strict nutritional regiment, and have studied the competition. All that’s left is for them to go out and compete to the best of their ability – and hopefully take home a medal.
The same goes for RRSP holders. If you’ve spent the last year diligently saving each month, there will be no issues getting as close to your contribution limit and saving as much money as possible.
Article submitted by Ratehub.ca
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