Q: How do I save for an RRSP?
An RRSP is one of the best savings and tax-deferral programs the government ever invented. But coming up with the cash to contribute can be a challenge, especially in a tough economy.
People who learn to save when they’re young are better off financially as adults. And when it comes to RRSPs, any contribution is better than no contribution.
One of the best strategies for saving is setting up an automatic withdrawal system at the bank. Have a fixed amount of money transferred from your chequing account to your RRSP every payday, before you have a chance to spend it.
Whether it’s shoes, CDs or a $5-a-day coffee habit, we all have some secret way of spoiling ourselves that is a likely place to cut spending and start saving.
The amount you save is not as important as getting into the habit of saving. Borrow books and magazines from the library instead of buying them. Bring your lunch to work, entertain friends at home and take the kids on a nature walk instead of to a movie.
Q: Should I maximize my RRSP contribution?
Some say contributing the maximum to our RRSP each year will allow us to maintain our current lifestyle in retirement, but is this true?
The truth is, many people simply can’t afford to maximize their RRSP contributions each year. It’s tough on top of all the other expenses in life.
The RRSP rules are designed so that if you maximize your RRSP contributions every year, you will build a retirement nest egg that will pay you an income of roughly 70 per cent of your pre-retirement earnings. If you pay off all debts including the mortgage, car loans and credit cards; if your kids have moved out; and if you are in reasonably good health after you retire; you may be fine with as little as 40 per cent of your pre-retirement income.”
RRSP checklist
- The RRSP deadline is March 1, 2010
- To qualify as a 2009 deduction, contributions to your personal or spousal RRSP must be made on or before March 1, 2010
- Determine your RRSP contribution limit for 2009 by referring to your previous year’s Notice of Assessment from the Canada Revenue Agency (CRA), or visit the CRA website at www.cra-arc.gc.ca.
- Determine how much, if any, you have already contributed to your RRSP for 2009
- You can take advantage of any unused 2009 RRSP room up to your contribution limit. You will receive a 2009 tax deduction for this amount as long as a contribution is made by the March 1, 2010 deadline
((Article supplied by the Institute of Chartered Accountants of Ontario))
