Whew, you made your RRSP contribution by March 1. Did you discuss your investment options with your advisor as part of your overall financial plan, or did you rush to make the deadline and just ‘park’ the money in the RRSP? You have good intentions of discussing with your advisor later when you have more time. Unfortunately, it is easy to forget about those parked funds, which means you are losing out on time in the markets and tax free compound growth. Don’t underestimate the significance of tax free compound growth. Saving even a small amount of money, week after week, may not seem like much, but it can grow using the benefits of compound interest.
Reaching your goal of financial freedom, a worry free retirement, which enables you to maintain your standard of living, does not happen overnight. One of the keys to success is to take advantage of time, as a familiar saying goes: ‘it’s not timing the markets, it’s time in the markets’. An effective way to increase time in the markets is by setting up a regular contribution to a registered account – Registered Retirement Savings Account (RRSP), or Tax Free Savings Account (TFSA). Many people like the ability of decreasing their income by contributing to an RRSP, and paying less tax that year, but an option could be to contribute to a TFSA all year. Depending on your annual income you could transfer the funds to an RRSP by the first 60 days of the following year, or leave it in a TFSA. You are not able to lower your income by the amount of the TFSA contributions, but you will have the benefit at the time of withdrawal. You do not have to pay tax on interest earned, dividends paid or capital gains triggered when you make a withdrawal from your TFSA. Remember that a TFSA is not just a savings account at your bank, you are able to purchase stocks, mutual funds or GICs in a TFSA. If you are able to delay a large purchase until the last couple of months of the year, I often recommend taking the funds out of your TFSA instead of your chequing or savings account. You don’t have to pay any income tax on any of the money you withdraw, and, TFSA rules allow you to replace the withdrawn funds the following year. No extra funds to contribute on a regular basis? Check your monthly spending to see if you can cut back on anything, or, are you paying a high interest on credit card debt, or loan – check into a consolidation loan or refinancing your mortgage. An advisor can discuss your total financial picture, there may be options you haven’t considered. Please call Carol if you have any questions.