Last time, we talked about the 5 RRSP pitfalls that can keep you from getting the maximum benefit from your savings. They aren’t the only ones you need to be concerned with when making decisions about how to plan for a secure future. Making a simple error now can have far-reaching consequences in years to come.
Contributing to your RRSP is just the first step. Find out how to avoid even more RRSP pitfalls and have more funds available to you in retirement.
Too Many Financial Accounts
If your RRSPs are spread out over several financial institutions, it can create havoc in managing your overall portfolio and attaining your financial goals. You may also end up paying extra account fees. Consolidating all your RRSPs into one account should provide you with peace of mind that your financial advisor fully understands all your holdings and that your assets are properly diversified to reduce risk. You will also get the benefit that your financial goals are understood, making your retirement reality fit the picture you have in your mind.
Staying in Cash too Long
RRSP season tends to be a busy time with many people making last-minute contributions. Your financial advisor may suggest leaving your contribution in cash until you both have time to sit down and properly asses where you should be investing your monies. This is a good strategy for the short term; however by leaving your RRSP in cash too long, you could miss out on opportunities to grow your savings faster. If you are parking your RRSP contribution in cash this year make sure your follow-up meeting with your financial advisor has been booked soon after.
Failing to Take Advantage of a Spousal RRSP
Spousal RRSPs may not be as favorable as they once were due to changes in the income splitting rules; however, there still are some advantages. The new rules now allow for people 65 years of age or older to allocate up to a maximum of 50% of their RRSP/RRIF income to a spouse or common-law partner (for income tax purposes). If you need income from your registered plans before the age of 65, income splitting opportunities are not an option. This is where the value of a spousal RRSP comes in. If your spouse/common law partner is in a lower tax bracket and has a spousal RRSP, then taking income from their spousal plan may be the better option to alleviate some of the overall household tax burden. Your financial advisor can offer advice on this.
Waiting Until the Last Minute to Contribute to an RRSP
This is a common pitfall that many people fall for. Setting up a regular monthly contribution to an RRSP is an easy and convenient way to stay on track with retirement saving. It means no rushing to make an appointment to contribute in the first 60 days of the New Year, and you get the advantage of almost a full year of compound interest to let your savings grow.
Failing to Contribute Anything to an RRSP
The worst thing you can do is assume that you will always have time to start saving for retirement “next year” or “when things get better.” Start your plan with an amount that you can reasonably afford, but get started now. The sooner you start putting money into a plan, the sooner it starts working for you. A small amount of money that is invested regularly will grow over time. It can fund a very comfortable retirement, but you can’t achieve your goals unless you get started.
As an experienced financial advisor, I help people turn their dreams for a comfortable retirement into manageable goals and help them avoid RRSP pitfalls along the way. Please contact me today for your personal consultation.