Plan for you. Plan for your family. Plan for your retirement.

The necessity of RRSP programs 

To the Employee:

I am perplexed by the number of candidates I interview who do not regularly contribute into their RRSP programs supplied by their employer. As a business owner, I often wish I had an employer to help match a portion of my contributions.

Here is my general outlook on retirement and the associated savings required: With the advances in modern technology and medicine, people are living much longer. If retirement is set at 65 years of age and the average person lives until 80+ or even 90 years old - they will be living out another 25 years within retirement. This does not consider anyone wanting to retire early! (I do! I do!)

So here is a question I will ask you to get you thinking about YOUR retirement:

HOW DO YOU WANT TO SPEND YOUR RETIREMENT YEARS?

I’m not an expert on retirement planning or finances, but I do understand that the age-old adage of saving 10% from every pay cheque into a savings account to use for retirement is not nearly enough to accommodate the lifestyle most of us have or hope to have in our golden years.

If I am only saving 10% of each of my paycheque (assuming I will make progressively more each year in promotions, inflation etc….) I still wont be able to cover the time I hope to spend in retirement with my expenses for 25+ years. Even with CPP and OAS from the Canadian Government, my goals will be mismatched with the financial requirements.

RRSP’s are a great option to being proactive about my later years in life. I don’t want to be 65 years of age and worried I cannot afford to live out my remaining years (after working hard for the last 45 years) with all my retirement goals and dreams in hand. Wouldn’t that be disappointing?

An RRSP is a Registered Retirement Savings Plan. It is a tax friendly savings account to hold and invest in assets worldwide. There are multiple benefits to holding an RRSP, I have listed a few major ones:

·      Contributions are tax deductible

·      Savings grow tax free – taxed on withdrawal (much like a salary)

·      Taxes deferred until withdrawal

·      Possibilities to income split and increase spousal contributions to increase tax deductions

·      Take advantage of compounding interest! (Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.)

·      Employers will match certain percentages of what you are contributing (various company to company). Think of it as money they are investing into you and your future well being.

I have tried explaining RRSP and other tax free options to friends and acquaintances (again, I am no expert on the topic) and I am concerned at the amount who have not started, are not likely to start or have no idea how to get started.

Here is a super general breakdown of how it works with RRSP. Again, I am not a financial planner or expert. This is just a general overview.

Your RRSP will “generally” work something like this:

·      You CONSISTENTLY contribute X amount of dollars into the account – tax free

·      Your employer will CONSISTENTLY match a percentage (varies by company) into the same account – tax free

·      Your RRSP will OVER TIME grow and grow through matching, personal contribution and any earnings/dividends you reap on the market

·      The continual earnings, contributions and overall increases will experience compounding interest (your best friend) OVER TIME.

·      By the time you are 65 years old and decide to retire, you are now in a better position then if you tried to save 10% of every paycheck into a savings account and prayed to the powers that you never get tempted to spend that money.

·      You automatically withdraw X amount of dollars weekly, bi-weekly, monthly to live out your remaining years in your retirement dream (these withdrawals are subject to tax).

·      The compounding interest does not stop once you release your monthly expenses or “salary”. Any money sitting in the RRSP, waiting to be released will still be hard at working reeling in your interest payments.

Once your RRSP contributions are made they are locked into the account until you retire. You may withdraw but there is a penalty to withdraw - so unless your stuck in a pickle, it should stay in that RRSP and reap benefits of being a tax-free account.

You can move your RRSP to different employers. There are different options and rules to have this done. The notion here is that you continue your RRSP contributions and possible matching if possible through all your employers over your career.

If your employer does not offer RRSP plans – do not panic. Open your own! You can make your own contributions and take advantage of higher returns, rates and compounding interest compared to a regular chequing account.

So back to my main concern, why are employees not taking a step closer to their retirement goals now? Have employers, schools, government not taken the time to educate our citizens (their people) on how to prepare themselves financially for what lays ahead? This blog is meant to raise awareness with individuals in all walks of life to be more proactive in their future. It’s a tough reality when you reach the age of retirement and realize you must continue working beyond what you had hoped. No one wants to be in this position!

I highly suggest taking the time to look further into your retirement and looking at a reasonable and reliable plan head on. I am not a financial expert or planner but feel free to drop me a comment or message. Let’s get the word out there to take advantage and save our retirement dreams!

-Agnes