Alison's Money Rule

How to avoid the RRSP deadline

Posted March 14, 2012
Originally Published March 6, 2012

Don’t wait until your financial ship comes in.  Save for retirement monthly to achieve the most secure nest egg.

You did it again.  You went down to the RRSP wire, raided the kids’ piggy banks, maybe leaned on your line of credit or put the touch on a grandparent then rushed off to make your last minute contribution. 

With just under a year until the next RRSP deadline you resolutely swear you’re not going to do the last minute thing again.  But I find that RRSP contribution vows, like New Year’s resolutions, tend to get tossed aside in the stampede of life. 

Take heart, I have a solution.  Before the week is over set up an automatic transfer from your bank account to your RRSP.  Just do it!  Money that is out of sight is out of mind and, better yet, sheltered from spending urges.

While it would be nice to max out your RRSP contributions through monthly deposits, that’s unrealistic for many, especially those with families, mortgages and car loans. 

Instead, pick a number you can live with that won’t stress you financially.  Even $50 or $100 will start you off and chances are the money won’t be missed if it is out of your account before you even have time to think about spending it.  To be safe, set up the transfer a couple of days after your paycheque is deposited.

Here’s a trick to go along with an automatic contribution plan.  Give yourself an RRSP raise on a regular basis.  Every six months or so bump up the transfer into your RRSP by a bit.  You won’t feel the pinch but the habit, once ingrained, will eventually turn into a nice tax deduction year in and year out.

Another rationale to this plan is the benefit of regular investing, called dollar cost averaging.  If you contribute to your RRSP monthly, and invest in a group of quality products at the same time, you will have a much better return over time than those who make haphazard lump sum contributions and investments.

Dollar cost averaging evens out the ups and downs of the stock market and interest rates and also saves you from trying to guess when is the best time to invest.  Research shows pretty much everyone gets it wrong over time.

Sidebar

53% of 18 to 34 year-olds do not have an RRSP account

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