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Column: Time to re-think the RRSP experience

While my wife and I were going for a walk the other day she told me how much we had in our Registered Retirement Savings Plans (RRSPs).

While my wife and I were going for a walk the other day she told me how much we had in our Registered Retirement Savings Plans (RRSPs).

I have to admit that I have paid  more attention to our clients’ affairs than our own, so I was pleasantly surprised.

Although I don’t plan on fully retiring, it was comforting to know that we are within reach of doing so if we choose.

Years ago, we committed to eating our own cooking and it seems to be paying off.

It got me thinking about the key factors that lead to a successful RRSP experience. That’s hard to do when you are bombarded by the unbelievable level of media noise that tries to sway us in so many different directions.

Fortunately, I have the privilege of meeting and working with a lot of awesome people who have secured retirements free of financial worry, primarily through their RRSP accounts.

I have distilled their experiences and success into a few simple rules:

 

* Rule #1 - Habit and behaviour are the determinants of success when growing your RRSP.

It all begins with committing to paying yourself first before all the things that you don’t really need. I will refrain from getting into lame analyses of why you need to start early, contribute regularly, increase your contributions as your income rises and to stop freaking out when the market fluctuates. You know I’m right, so just do it!

* Rule #2 -Realize that stock picking, market timing and fund switching are not effective behaviours. Focus instead on Rule #1. The RRSP after all is not actually an investment but rather a tax umbrella created by our government that allows us to hold all kinds of investments, deduct our contributions from taxable earned income and allow our portfolio to compound tax-free over its duration. You need help in effectively structuring an investment mix that is just right for you, stick to it and adjust it only according to your changing circumstances.

* Rule #3 - Stop second guessing what a wonderful tool the RRSP is. The federal government introduced the RRSP in 1957 so that we could set aside a portion of our income each year for retirement and not be taxed on it. Although we often love to criticize the government, they really do try to look after us and encourage us to not be destitute in our retirement years. Despite those who may try to convince you otherwise, the RRSP is still the bedrock of most retirement plans.

* Rule #4 - Work with an experienced independent financial advisor who sits on your side of the table rather than the side of a financial institution.

There are only a small number of obsessive individuals who have enough free time and dedication to try and do this alone.

Google “CRA RRSP” for an excellent guide to all the details.

The opinions expressed are those of Richard Vetter, BA, CFP, CLU, ChFC.  Richard is a certified financial planner and owner of WealthSmart Financial Group in Richmond, BC.