Clark Wealth Management Group - ScotiaMcLeod Fredericton

Being discouraged is no reason to jeopardize your retirement plans

Recent surveys done in Canada suggest people are reluctant make their RRSP contribution this year. Today we’ll look at some of the implications – starting with a bit of a quiz.

If your RRSP has earned less than you had hoped it would, you should (pick one):

Not get tricked into contributing to an RRSP again this year.
Withdraw what’s left of your RRSP, put most of it under your mattress and buy lottery tickets with the balance.
Contribute as little as you can get away with to minimize your tax bill and insist it be invested in something with a guarantee of your capital and a 3% rate of return.
Add more than you would have otherwise knowing that with a lower rate of return you need to contribute more to have enough in retirement. Invest it according to your need for returns and your tolerance for risk.

Of course most recognize that answers 1 – 3 are emotional and perhaps even silly, but sadly, some people will not chose number 4 as the correct answer.

The past few years have been tough on investors. Many of us compare what we had saved for retirement 3 years ago and find we are only slightly ahead today. Some investors may even be slightly behind. That fact makes investing tough to do, but all the more important for us to contribute as much as we can manage toward our retirement goals.

Remember, it’s for our retirement – not somebody else’s. By under-funding your retirement plan you’re harming nobody but yourself. When it comes time to retire, reminding yourself that you were discouraged by or angry about your rate of return won’t make the fact that you don’t have enough saved any better.

For those Canadians who are not members of a pension plan, here’s what income the government currently provides for you at age 65 years. The average CPP benefit is $472/month while the average OAS benefit is $464/mon. That amounts to about $926/mon. for each surviving spouse. I’m not sure about you but I’m certain that Mrs. Clark’s plans for retirement are going to cost far more than that.

This year you can contribute 18% of your 2008 earned income up to a maximum of $21,000 if you are not a member of a pension plan. If you are a pension plan or deferred profit plan member you can contribute 18% of your income less a pension adjustment amount (shown on your T4 or notice of assessment from the previous year).

Sound advice is sometimes unpopular. I understand that you may be discouraged and feeling as though you may just skip or reduce this year’s retirement savings contribution. My advice to you is, take the time to talk with your financial advisor soon about how much you should set aside for your future needs. When the time comes that you need the money, you’ll be very glad you did.

Keir Clark, is a senior wealth advisor, with Clark Wealth Management Group and branch manager at ScotiaMcLeod in Fredericton, NB. He can be reached online at www.keirclark.ca or by telephone at 506-450-6465.

Information and opinions contained herein have been compiled from sources believed reliable but no representation or warranty, expressed or implied, is made as to the accuracy or completeness.