Don’t forget, March 1, 2017 is the deadline to invest in RRSPs for the 2016 tax year. At this time of year, we typically hear of many people scrambling to determine the right investment, and get it processed in time for the March 1 deadline. Something that you may want to think about for the future is to create an RRSP systematic savings plan. An RRSP systematic savings plan is a “forced” savings plan, where your RRSP contributions are either automatically processed through your bank or financial institution, or where you’ve committed to contribute on a pre-determined schedule. Here’s why you should consider it, and some tips on how to set it up.
Monthly Contributions vs. Lump Sum: Typically, it can work in your interest (pun intended) to make monthly contributions towards your RRSP than a lump sum payment. This is because it allows you to earn on your money right away, and it gets your money working for you, tax free. If you’re a market-based investor, by making monthly contributions you are buying into the market 12 times a year and taking advantage of the ups and downs of the market. You’re able to buy more units or shares on down days and buy less units or shares on up days. This is called dollar cost averaging. Dollar cost averaging is proven to be a better strategy than trying to predict when the market will provide the best outcome.
How much: When setting up a systematic savings plan, you need to determine the right amount for you to contribute on a monthly basis. To do this, you will need to have your bills, expenses, savings, and financial portfolio identified so that we can help you setup the right amount for your circumstances. What we typically recommend are monthly contributions that are sure-bets, that you can easily afford, with the option of top-ups throughout the year. Think of your RRSP contributions as monthly bills that you should be paying, just like your utilities and car payments. Be careful not to exceed your RRSP contribution limit, as this can result in fees from the CRA for over-contributing.
Start early: In cases where you cannot contribute on a monthly basis, try to contribute to your RRSP with a lump sum as early as possible. We often hear about cases where people have left their RRSP contribution to the last minute, and don’t have the funds available to make the deadline, so they borrow from their line of credit. Set up a systematic savings plan so that even if you cannot commit to monthly contributions, you contribute to your RRSP with a lump sum earlier in the year, so you don’t need to stress about having the funds or deciding where to put them at the last minute.
Ultimately, when it comes to your RRSP, don’t wait until the last minute. Life can get hectic, and your RRSP contributions should be planned for and contributed at times that work for you, in ways that give you the least amount of headache. If you have questions about setting up a systematic RRSP savings plan, feel free to give us a call at 416-646-2433 or send us an email at email@example.com.