The majority of Canadians (60%) who will contribute to their RRSP this year will do so in the next two weeks, says TD, and many will leave it right down to the wire for the March 1 deadline.
“Making regular contributions throughout the year, every year, is the most effective way to grow your retirement nest egg,” says Kim Parlee, vice president, TD Wealth Management.
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Here’s how to help clients overcome common misconceptions about contributing last minute.
“I don’t have enough money throughout the year to contribute.”
Of Canadians who wait, 44% didn’t feel they had enough money to contribute throughout the year – 12% meant to set up regular automatic transfers to their RRSP, but didn’t get around to it.
“Creating an automatic monthly RRSP contribution is easy – and then you’re set for the rest of the year. Your money is moved to your retirement savings before you have a chance to spend it on other things,” says Parlee. “Contributing smaller amounts throughout the year won’t have a significant impact on your lifestyle and you’ll avoid a last-minute scramble to come up with a lump-sum at the end of the year.”
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According to Statistics Canada, the median amount Canadians contributed to an RRSP in 2011 was $2,830.
“If you break that down, it’s only slightly more than $50 a week,” says Parlee. “That’s not a lot week-to-week, but it does add up over the long-term.”
“It’s a better strategy to wait until the last minute.”
Some Canadians think this is the best strategy, and 45% only contribute in lump-sum payments.
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“If you wait until just before the deadline and make one lump-sum payment, you’re missing out on the potential for compound interest throughout the year,” says Parlee. “While this amount may not seem significant, it adds up over time.”
“I shouldn’t invest because of market volatility.”
Work out an asset allocation that’s right for your client’s risk tolerance based on the number of years they have until retirement. Explain the impacts of market movements, says Parlee.