'Tis Almost the Season

Well folks, it's the middle of November.  Christmas is a mere six weeks away.  Once we're through the holidays, it's "that time of year" again.....that's right, RRSP season.  The banks will have their signs up urging you to contribute to your RRSP.  Some of the banks even put up neat little countdown clocks to keep reminding you of the urgency.  Question:  Does your banker actually explain to you WHY you need to do this?  Do they take the time to ask you about your risk tolerance and how fast you want your money to grow?  Or does the teller just insist that it's a really good idea and get (more than) a little pushy? 

Many Canadians know that an RRSP can generate a tax break, but not much more than that, so let's being with some basics:  RRSP stands for Registered Retirement Savings Plan.  This is a plan that you set up, that is registered with the government, and that you contribute to in order to grow some savings tax-free for your retirement.  RRSP contributions can be used to reduce your income tax.  The money is taxed upon withdrawal.  

The idea of the RRSP is to encourage Canadians to save for their retirement years.  The RRSP is designed to work for the LONG TERM.  Unfortunately, too many Canadians only see it for the immediate tax break and then end up pulling out early because of some "emergency" or other.  In the industry, these folk are known as "put-and-takes".   

When you withdraw from your RRSP early, it is taxed as income at your full tax rate for the year you took the money out.  If you take out enough, you can push yourself into a higher tax bracket without meaning to and really create some problems for yourself.  So, consider carefully whether your "emergency" really is one.

This is where a financial advisor can help you.  Any financial advisor worth their salt should be taking a look at your whole life -- what you have now, what you need, where you want to go, when you want to get there.  The advisor will help you set up your long-term planning, which may or may not mean you need a registered plan, and help you become disciplined enough to have short-term savings for real emergencies.

More to come........

Mary