If you’re afraid to open your registered retirement savings plan (RRSP) statements you’re probably not alone. Many Canadians have a lot of debt, which means their retirement savings will probably take a financial hit – and that can be hard to face. When RRSP season moves into full swing, you might be inclined to keep those statements out of sight or avoid making any new contributions. Volatile markets are tough to weather but ignoring your RRSP this year would be a mistake. Now is not the time to backtrack. You still need money for retirement and the investments you hold in your RRSP will build your wealth over time and help you reach your goals. Here are a few tips to help you to stay calm and focused on your RRSP savings goals during tough times.
1. Meet with your financial planner
Or, if you don’t have one, seriously consider getting one. Go over your losses and your goals with your planner to find out where you stand. Are you still on track? And should you be making any changes to your portfolio (or your goals) in light of what’s happened in the past year?
2. Pay yourself first
It’s the main tenet of financial planning. Every month, make sure you put money aside for savings. While you might be cutting back on spending and working to get your debts paid off, it’s more important than ever to put money into your savings on a monthly basis. That way, when RRSP season rolls around, you won’t be scrambling for money to put away. Set up an automatic transfer to your RRSP on a monthly basis — whether it’s $50 or $500, every little bit helps!
3. Max out
If you can, try to maximize your contribution. You can find out the amount from last year’s Notice of Assessment or Notice of Reassessment from Canada Revenue Agency.
4. Don’t forget the tax deduction
Contributions to your RRSP are deductible – a major bonus at tax time. Depending on your tax bracket, you can save up to 40 percent on your taxes through your contribution. So, a $1,000 contribution to your RRSP can reduce your tax bill by up to $400.
5. Leave it alone
No matter how tough times get, try not to dip into your RRSP savings. Instead, focus on building up a reserve of cash in your portfolio to help you out on a rainy day. Ideally, it would be great to have enough to replace your income if necessary for at least six months.