Tie goes to the one who gets there first. Interesting twist of an old saying and being somewhat of a weekend ball player it sticks in my mind. Let’s see how that adage fits into your retirement portfolio; it probably doesn’t----you want to win the tax and inflation game—you worked and saved to win, not tie.
Thoughts and purchases around RRSPs used to be crammed primarily into one month a year; February. At least people thought about them; unfortunately, for the most part, the lack of follow through somewhat negated the potential full benefits. Over the last few years we have seen less and less of a last minute rush as more people have realized the significance of planning all year.
Listed below are some core RRSP planning ideas and guidelines:
Last day to contribute for 2005 is March 1, 2006.
Set up a monthly RRSP withdrawal plan. You are able to dollar cost into the markets, or, if you are a ‘guaranteed only’ type of investor your monthly contribution can be built up in an account earning up to 2.85% and invested into a Guaranteed Investment Certificate once the amount reaches a certain threshold (usually $500 $1000.). The other benefit to you is this disciplined approach pays yourself first.
If you do not have the cash to contribute to an RRSP, consider obtaining a loan for the purchase amount. These loans are often available at prime and with a 90-120 day payment deferral period. This allows you time to receive your tax refund, lump sum onto the loan and reduce your monthly loan commitment amount.
If you are someone that asks the question ‘should I pay down my mortgage or should I contribute to RRSPs?, you can do both; everyone’s situation has to be looked at separately, but one way this can be achieved is by applying your tax refund to your mortgage principal.
If you hold cash, stock certificates, mutual funds or even GICs (in some cases) in a non registered account, you can contribute to the RRSP ‘in kind’. This does not involve the actual cashing in of the investment but will give you an RRSP contribution equal to the market value of the investment on the date of transfer. Make sure you talk to your financial advisor or accountant to ensure any tax implications are taken into consideration.
Do not forget your about your existing portfolio—did you invest last years contribution or is it still sitting in that last minute money market account. Does the portfolio still meet your objectives? is the investment performance satisfactory? As you are getting closer to retirement age should you be lowering the risk level? Did you get a phone call on all your maturities all year to ensure optimum reinvestment return?
Remember, implementing a sound, disciplined strategy will help to ensure that you ‘get there first’.