With the RRSP deadline of March 1st less than two weeks away, you’d think most Canadians would have fulfilled their contributions by now – so it may come as a surprise that most still haven’t.
According to a recent poll by TD, 60 per cent of Canadians wait until the last two weeks to make their RRSP contributions. Even worse, many wait until the very last day, to make their RRSP contribution. No wonder banks extend their hours on March 1st!
Leaving Money on the Table
Although the majority of Canadians who contribute to their RRSP wait until the final hour, at least they contribute. Only 26 per cent of Canadians contributed to their RRSP in 2010, according to Statistics Canada. For the Canadians that actually contributed, they contributed a total of $33.9 billion in 2010. That sounds impressive, until you hear that Canadians could have contributed a whopping $717 billion. That’s $683.1 billion in RRSP contributions left on the table – not chump chance by any stretch of the imagination.
A Little Goes a Long Way
Forty four per cent of Canadians who contribute to their RRSP at the last second said they felt they couldn’t afford to contribute to throughout the year. But here’s the kicker – setting up regular automatic transfers to your RRSP can be a lot more manageable than scraping together a lump sum at the last minute. Even contributing $50 a week can really add up – that’s $2,600 a year towards your RRSP! If you contribute $50 a week from age 35 to age 65, with a modest rate of return of 5 per cent you’ll have $252,879.80 when you retire. If your employer offers an RRSP, even better – you can receive the tax deduction immediately and take advantage of the power of compounding.
Pay Yourself First
Forty five per cent of Canadians who invest in an RRSP only contribute a lump-sum payment once a year. Before you’re tempted to spend $50 on those nice pair of shoes, make your RRSP a financial priority and pay yourself first. That way you won’t be tempted to spend the money if it’s already been put towards your RRSP. You’re not taking full advantage of your RRSP by making lump sum payments. By making regular payments throughout the year you can take advantage of dollar cost averaging by spreading your investment risk. If you make a lump sum payment once a year you’re timing the market – you could make an investment right before the market bottoms out and cost yourself a lot of money.
Spread the Wealth
Thirteen per cent of Canadians won’t invest in their RRSPs due to market volatility. Although the market has its upswings and downswings, through proper diversification and asset allocation your portfolio should grow long-term. It’s important to have a balance of equities and bonds – when equities are down your bonds will most likely be up and vice-versa. Your financial advisor can help you set up an investment portfolio that meets your risk goals without keeping you up at night. Don’t be an RRSP procrastinator – contribute all year round!