Financing your future

Why thinking about retirement today is a sound investment
Mar. 18, 2011 | By: Alison Dunn

Now that the RRSP deadline has passed for another year, you’re probably not thinking much about your retirement savings at all. But according to most financial experts, just because the deadline has passed, that doesn’t mean you should stop investing. In fact, now is actually the perfect time to start planning your financial future.

“Saving money isn’t about giving up what you enjoy,” says Lee Anne Davies, head of retirement strategies with RBC. “It’s about planning wisely so you can afford the lifestyle you want in the future.”

For example, if at age 25, you contribute $1,800 per year to an RRSP, over the next 10 years, assuming an annual rate of return of six per cent, your nest egg would be worth more than $25,000. Even if you don’t make any more contributions to that RRSP, it should grow to almost $153,000 by the time you turn 65.

If you only start making that $1,800 annual contribution at age 37, however, you will have to keep up those contributions for 29 years to have a nest egg of $140,000 by the time you turn 65.

“The important thing is to start as early as possible,” says Davies. ”One of the most effective ways to save is to have an automatic savings plan. Many people find that they don’t even miss the money, because they never see it.”

This approach offers two advantages. For one, the money you save starts growing immediately, rather than waiting another 12 months until the next RRSP deadline. And, more importantly, if an unexpected expense crops up right before the RRSP deadline, you can still take advantage of any tax savings without the need to make a lump-sum payment into your investment.

Take control of your family’s financial future

Not sure where you’re going to find the money to invest? Patricia Lovett-Reid, senior vice-president, TD Waterhouse gives these tips on where to find hidden savings:

• Cut back on unnecessary spending: Differentiate between nice-to-have and need-to-have items and balance your budget.
• Make it automatic: Pay yourself first on every pay date by setting up a pre-authorized purchase plan (where money is taken from your bank account and automatically invested at regular intervals).
• Take a long-term approach to investing: Market volatility is scary, but remember that it decreases over time. Focusing on the long-term will help you stick to a disciplined strategy throughout short-term market volatility. A TFSA (tax-free savings account) can be a good complement to your RRSP.
• Scale back your lifestyle: Make tough decisions now before you find yourself in a tight corner. For example, consider downsizing your home and using the money left over towards your children’s (or your own) education.