There’s a lot that can go wrong with your RRSP or ‘Registered Retirement Savings Plan’. It must be baffling for some to learn that something can go wrong with what is essentially a savings tool. But, considering the debt crisis we Canadians find ourselves in, its indication enough that we haven’t quite been as smart with our money as we’d have liked to be. So, let us list down the common RRSP mistakes we tend to make.
When you’re young, time and tide are on your side. But, time is only on your side because you potentially have years and years of money to earn. It’s imperative to start accumulating money for the many uncertainties of life. In this case, however, the eventuality of retirement is hardly an uncertainty. Starting early is a general investment rule most investors swear by, and it holds true in the case of RRSP as well. If you’re thirty and if you haven’t started to accumulate steady savings for the purpose of your retirement, we say you must begin right away.
We have come across instances where individuals dive into their RRSP to fund their vacation to Acapulco or to Australia, while others may do so to sponsor their car. But, that’s a common RRSP mistake! (Don’t be alarmed if you find an unexpected tax bill at the end of the financial year!)
The point of the RRSP is to simply fund the retirement. The only two exceptions are: withdrawing funds from RRSP for the purpose of funding your first home and/or for the lifelong learning plan. But, remember, you must pay back the requisite sum eventually.
Unfortunately, the RRSP is not a kitchen sink. Naturally, there are limitations to the amount that you can save within the scope of your RRSP. This amount differs for those who have a pension plan versus those who don’t. Those who don’t have a pension plan can add 18% of the total income they generated in the previous year. However, the maximum amount they’re entitled to add is $26,010 a year. The amount is naturally lower for those who don’t have a pension plan. Canadians must remember that they can add a maximum of $2,000 dollars above limit during the course of their lifespan, anything over that sum can be taxed accordingly.
Life is unpredictable. A grave mistake people usually end up making is not revisiting their RRSP plan from time-to-time. Let’s say you set forth a plan ten years back when you were 25. We are sure things have changed ten years down the line with regards to your financial position. Doesn’t this also mean that you need to revisit your RRSP? Consider evaluating your retirement goals from here on and accordingly revise your RRSP plan.
It’s important to avoid such common RRSP mistakes and common financial potholes. Are you looking for a financial management firm to help you handle your finances? Here’s where you can get started.