- Start investing in an RRSP early, and put time to work for you. Consider a 20 year old who invests $2,500 each year for 15 years, until she turns 35, in an investment with a compound rate of return of 5%. If at the age of 35 she keeps her money invested, but makes no further annual contributions, she will have over $267,000 dollars saved by the time she retires at age 65. Compare that to an investor who starts investing later in life, at age 35, and contributes $2,500 each year for 30 years. By age 65, this investor will have accumulated just over $166,000 in retirement savings. So make sure you start saving for retirement early in life – but remember – it’s never too late to start.
- Contribute early in the year to maximize growth. You can contribute annually to your RRSP from January 1 of any calendar year until 60 days into the following year. If you have the money, make your contribution as early as possible instead of waiting until the 60th day of the following year. Your plan will benefit from up to 14 extra months of tax-deferred compounded growth for every contribution.
- Pay yourself first. Before you pay your monthly bills and expenses, contribute regularly to your retirement through convenient, automatic withdrawals from your credit union account. With a Pre-Authorized Contribution or “PAC” Plan you can contribute as little as $50 weekly, monthly, or semi-annually – whichever is right for you. A PAC Plan lets you take advantage of dollar cost averaging to maximize your growth opportunities and reduce risk. Dollar cost averaging smoothes out the volatility of your fund holdings because you buy more units when prices are lower and fewer when prices are higher.
- Add foreign content. Canada is a small player in world markets. In fact, 98% of the world’s investment opportunities lie outside our borders. A geographically diversified portfolio can boost your potential returns and reduce the risk in your portfolio.
- Contribute the maximum permitted. This allows you to take full advantage of the tax deduction from contributions and ensures that you‘re putting enough aside for a comfortable retirement.
Article courtesy of Credential Asset Management Inc.