Tips for a Successful RRSP Season in 2021

With RRSP season here once again, now is the time to give some extra thought to your retirement.

Arguably, retirement planning can be stressful – especially as you draw closer to your retirement day – and the uncertainty of the past year certainly hasn’t helped.  Outliving your savings is, rest assured, a lot more stressful.  If you want to enjoy your retirement years in comfort, what should you be doing now?

MAXIMIZING YOUR RRSP CONTRIBUTIONS

Contributing to a registered retirement savings plan (RRSP), and ideally maxing out your annual contribution limit, is one of the fundamentals of sound retirement planning.

If you’ve been doing this diligently over the years, well done! However, it’s also important to review the investments in your RRSP to ensure they continue to align with your investment objectives and risk tolerance.

Here’s an overview of key information and some helpful tips to ensure you have a successful RRSP season in 2021.

  • Contribution deadline: March 1, 2021
  • 2021 contribution limit: 18% of earned income (less any pension adjustment) to a maximum of $27,830

 MAKING THE MOST OF YOUR RRSP

How to maximize the value of your RRSP will depend on your specific needs and situation. However, here are some general tips to consider.

  • Consider recent market developments. Historically, annual returns on equities following downturn years have yielded higher than average returns. Whatever you do, don’t try to time the market. Given the upheaval seen in financial markets in 2020, you may want to discuss with us an RRSP strategy that makes sense based on your needs.
  • Use an RRSP catch-up loan. An RRSP catch-up loan can help you utilize any unused RRSP contribution room. Depending on your personal income tax situation, this may result in a tax refund that could be used to help pay down the RRSP loan. This is not a strategy for everyone.  Let’s talk before you do it!
  • Invest your tax refund or bonus. If you’re banking on getting a tax refund this year or expecting a bonus from work, what are your plans for this money? Rather than spending it on nice-to-have things, consider putting some or all of it into your RRSP. You may have to forego a bit of fun in the short term, but it can help give your retirement lifestyle a big boost in the long term. We can show you what that looks like for you.
  • Plan for taxes. As you put money into your RRSP, always remember that what you’re doing is deferring taxes today, not avoiding them forever. When you start withdrawing RRSP funds during retirement, you’ll have to pay tax on this money. The key to remember (and the big benefit of an RRSP) is that the tax rate will be based on your tax bracket at the time of withdrawal rather than your current tax bracket. In theory, you will be at a lower marginal tax rate… but what if you’re still at the highest? By simply looking at your RRSP account statements and not thinking of future taxes, you may think you will have access to more money than what you will actually have.

TAKING ACTION FOR A SUCCESSFUL RRSP SEASON

If the events of 2020 have left you stressed out and mentally exhausted, we get it. Yet an open conversation with your financial advisor to check in on your retirement plans might be just what you need to shift your focus to brighter days ahead.

Investing a small amount of time into retirement planning now to ensure you get the most out of this RRSP season will pay dividends many times over in terms of peace of mind and financial stability going forward.

Have you already maxed out your RRSP contribution room? This is a good problem to have! If you’re now looking for other investment alternatives to help you shelter additional growth from taxes, we can help.

Whatever your situation, we invite you to contact us at info@rubachwealth or 647.808.7700 to discuss your options. The RRSP deadline is approaching, so now is the time to act.