Understanding the family finances from a "big picture" standpoint can be a very daunting and intimidating exercise to tackle. It seems that as we hurdle through life's challenges, it is easy to get caught up in the day-to-day activities and roll from one bill to the next without giving much thought to an end goal.
At some point, we are going to need to rely on any savings we have accumulated and if we look back later in life to find there has not been enough attention paid to stashing money away for our eventual retirement, time can be our worst enemy. Playing catch-up in the savings department can be a demoralizing endeavour as we reach our golden years.
With the beginning of a new year, the bills start to roll in, giving a final tally of the Christmas spending, and all eyes turn to the next big target -- the RRSP contribution deadline. If your New Year's resolution was to become more active in your family's finances, a great place to start would be with your Registered Retirement Savings Plan. The deadline for your final RRSP contribution for the 2013 tax year is March 3, and over the next few months, we will shed more light on this savings vehicle as we count down to the RRSP deadline.
The RRSP was introduced by the Canadian government back in 1957 as a response to the impact of the baby boomers. This massive demographic has had a tremendous effect on so many things cultural and economic over the last six decades and our government was very well aware that the boomers could have a devastating effect on our retirement system when they started to retire en mass in their 60s. The pressure on our retirement pension system could be extreme without Canadians planning and saving additional dollars for their own retirement. With the pension system in place at that time, our government essentially said we're not going to be able to take care of you, so YOU take care of you. And they introduced the RRSP, which is one of the most generous forms of tax relief available to Canadians.
And yet so few people take advantage of all this program has to offer. According to StatsCan, less than one in three eligible Canadian tax-filers contribute to an RRSP. This is a problem as the RRSP has so much to offer from a tax savings point of view.
With the introduction of the Tax Free Savings Account, we now have another option for saving money for retirement, but most Canadian taxpayers should invest in RRSPs, particularly if they anticipate that their marginal tax rate will be lower in retirement than in their working years. Starting early with an RRSP is one of the best decisions you can make. Save as much as you can as fast as you can (comfortably) and the rest of your financial life will fall into place.
- Doug Riding BA, CFP, FMA, is a senior investment adviser with IPC Securities Corporation. www.ridingteam.ca