Credit Counselling Society

February 27, 2008 10:01 ET

What is the cost of waiting to invest in an RRSP?

Attention: Assignment Editor, Business/Financial Editor, Lifestyle Editor, News Editor NEW WESTMINSTER, BRITISH COLUMBIA, PSA--(Marketwire - Feb. 27, 2008) - As the RRSP deadline of February 29th looms, many consumers reflect on the passing of another year with little or no contributions to their retirement savings. The difference between people investing in their 20's versus starting in 40's could be hundreds of thousands of dollars.

According to Statistics Canada, 74% of Canadian taxpayers did not contribute to a registered retirement savings plan in 2006. Furthermore, 50% of those people , contributed less than $2,730, a mere 7% of their contribution limit. This gap in contributions to retirement savings suggests that many consumers don't realize how much money they will need when they retire and how much they must save today to reach that goal. Scott Hannah, President of the Credit Counselling Society, suggests that consumers set up an automatic monthly contribution. "By waiting to contribute money to their RRSP, consumers are missing the benefits of investing regularly in a registered retirement savings plan. We recognize that many people simply don't feel they have the funds in their budget to save every month. Others think they will wait until after they pay off the mortgage or the kids move out to start saving." Waiting could mean a significant shortfall of retirement income and greatly impact the lifestyle of many Canadians when they retire. To make up the shortfall some people will have to save more in their 50's and 60's when they could be spending it on travel or helping family. For some, saving extra money later isn't possible and they will never reach their retirement goal.

Consider the power of compound interest: Two people want to retire at age 65 and need $1,000,000 for a comfortable retirement. Joe is 20 and invests $200 per month in his RRSP. Paul doesn't start investing until he is 40 years old. Allowing for an average rate of return and inflation, Joe could reach his goal by age 65, while Paul will have to contribute $1100 each month to reach the same goal.

Hannah recommends that people review their budget and establish a retirement plan with a specific amount of money to contribute for the year. "Once they know their goal, they can match their RRSP contributions to their pay periods. This establishes the good habit of making regular contributions." With a look at where they are spending their money, most people are surprised to discover how much they spend on little extras. Trimming discretionary expenses can save enough each month for a regular retirement contribution. The difference could mean enjoying your retirement years or struggling without enough income.

About the Credit Counselling Society
The Credit Counselling Society is a non-profit organization dedicated to helping individuals and families find solutions to their debt and money problems. They provide free credit counselling and confidential guidance for debt repayment and credit education to consumers across Canada. The Credit Counselling Society is federally registered as a Canadian Charitable Organization and licensed in the provinces of British Columbia, Alberta, Manitoba and Saskatchewan. For more information, visit www.NoMoreDebts.org or call 1.888.527.8999.
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IN: ECONOMY, FINANCE, SOCIAL

Contact Information

  • Scott Hannah, President, Credit Counselling Society
    Primary Phone: 604-527-8999 ext. 211
    Secondary Phone: 604-636-0211
    Toll-Free: 888-527-8999
    E-mail: scott@nomoredebts.org