It’s RRSP crunch time again. That time of year when you search the nooks and crannies of your finances for the money you need to fill up your RRSP contribution room. And that is absolutely the right thing to do: An RRSP is the best tax-saving, income-building investment for most Canadians.
But it’s also tough to come up with a lump sum any time, and especially right after holiday season – miss out and you’ll also miss out on some immediate tax savings. Leaving your RRSP top-up to the last minute also means you have lost out on all that tax-sheltered, compounded growth you could have benefited from through the year.
So here’s your best solution for maximizing future RRSP growth: PAC your RRSP. PAC stands for Pre-Authorized Contribution Program and it’s such an easy way to invest, you’ll hardly know you’re doing it.
Here’s what PAC-ing your RRSP can do to deliver a much more comfortable retirement:
By automatically investing, say $250 regularly each month at a compound annual return of 8%, you’ll have $354,230 in your retirement nest egg 30 years from now.* But, if you wait until the end of each year to invest a $3,000 lump sum, you’ll have only $339,850. By investing monthly, you’ve added $14,380 at retirement without an extra penny of cost. That’s just one example of the considerable value of paying yourself first with PAC.
Tie your PAC strategy to a comprehensive financial plan. Decide what you want to do in retirement and it’ll be much easier to achieve your goal. And by PAC-ing your RRSP, you’ll enjoy the double benefit of working towards your goal and saving on taxes.
As time passes, your income changes and your life changes – so your PAC should change too. Reset your PAC annually by a lump sum dollar amount or by a designated percentage. That way, you’ll keep your RRSP contributions and other investing in line with inflation and personal wage increases.
And by the way, when you PAC year round, you’ll never again have to fear RRSP crunch time … you’ll never have to search for elusive top-up dollars at this time of year … and you’ll significantly improve your financial future – that’s a win-win-win any way you look at it.
Of course, PAC-ing your RRSP is just one (really good!) element in a total financial plan aimed at achieving financial independence on your own terms. Your professional advisor can help you put a complete package together that is absolutely right for your life today and tomorrow.
*The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to indicate future returns on investment.
John Scholl B. Mathematics, CGA, Wealth Management & Financial Planning
Investors Group 200 - 24 Queen Street East, Brampton, Ontario L6V 1A3
Tel. (905) 450-2891 X529 Cell: (416) 731-3660 firstname.lastname@example.org