If you want to make an easy job seem mighty hard, just keep putting off doing it. When it comes to saving for retirement, most Canadians are doing just that.
The majority of Canadian are procrastinating when it comes to making RRSP contributions and may be endangering their retirement security, according to the TD RSP Deadline Poll.
As many as 58% of those polled chose to wait until the last two weeks before the deadline to contribute to their RRSP. This includes 15% of those who contribute this way every year.
“As life expectancy increases, consider that you may be spending 20 years or more in retirement,” says Cynthia Caskey, vice-president, portfolio manager and sales manager, TD Waterhouse Private Investment Advice. “Therefore one of the most important steps Canadians can take toward securing their financial future is making an RRSP contribution.”
There are many reasons Canadians choose to wait until the last minute to contribute, or don’t contribute at all. Caskey picks the most common of those and offers advice on how to overcome them and make the most of RSP contributions.
Many Canadians opt for last-minute (19%) or lump-sum (47%) contribution, but these people may be foregoing the benefit of compounding.
“If you wait until just before the deadline and make one lump-sum payment, you’re missing out on really making the most of your retirement savings,” says Caskey. “Thanks to the power of compounding, contributing to your RRSP throughout the year, instead of just before the deadline, can really make a big difference.”
The study found that as many as 44% of Canadians polled said they don’t have enough money to contribute throughout the year. Caskey likens putting money into your RRSP to exercising.
“Maybe you’re not ready to participate in an hour-long, high-intensity class, but if you walk for 20 minutes you’re still making a positive difference,” she said. “The same goes for investing in your RRSP—even just a few dollars a week is still worth contributing.”
As income and expenses change, it’s important to adjust savings accordingly.
Market volatility has prevented at least 15% of participants from contributing, while another 16% said they “meant to” set up an automatic contribution to their RRSP.
“Setting up an automatic RSP contribution is easy and then you’re set for the rest of the year, not to mention that it’s a good way to budget for your RRSP,” said Caskey. “Contributing smaller amounts throughout the year may have less of an impact on your lifestyle, and you’ll avoid a last-minute scramble.”
As for the impact of volatile markets, professional help may be a good way to hedge against that, she added.
Finally, there is the option of borrowing to make an RRSP contribution before the deadline. The fact that only 11% of Canadians opt for an RRSP loan suggests many are not aware of the option.
“For some Canadians, borrowing to invest in an RSP may be a good idea because they can use the resulting tax refund to pay back the loan, and often you can defer both the principal and interest payment until you receive your tax refund,” said Caskey.
A financial expert can help determine the suitability of such an investment, she added.