Where retirement is concerned, borrow for
The key to a comfortable retirement is all in the preparation.
One of the best strategies to achieve a financially secure retirement
is maximizing your RRSP
contribution every year and sticking to it throughout your working life.
This example compares an annual RRSP contribution of $8,500 with one of $13,500 and assumes a nine per cent average annual compounding rate of return over 20 years. After a 20-year period, the additional $5,000 contribution at the end of each year increases an investors portfolio by almost 59 per cent.
It's unfortunate that so few of us maximize our allowable contribution because, as the graph shows, the value of time and compound growth over the years provide the greatest potential.
By maximizing your contribution, you could be ahead
by more than $250,000 after 20 years. Certainly, in some years we may
not have the money to maximize our contributions and that is when an RRSP
loan makes sense. Yet only 12 per cent of Canadians took a loan in 1996
to finance all or part of their RRSP contributions.* And while you may
want to assess taking on bad debt (i.e., debt for consumer
purchases), you should carefully consider good debt (i.e.,
debt that will help you invest for the future).
With todays low interest rates, an RRSP loan makes
even more financial sense. Thats because the actual cost of the
loan is relatively small compared to the savings growth you could achieve.
And, although the interest cost for the RRSP loan isn't tax deductible,
any income tax refund you get can be applied towards repayment of the
Using an RRSP loan to maximize your contribution is a smart move that will open up your investment options. Many financial institutions offer RRSP loans. Be sure to use one that offers competitive features and lets you invest the proceeds of the loan in RRSP-eligible investments that are right for your portfolio.
*Source: Trimark Monitor, 1997. ® Trademark of Trimark Investment Management Inc.
© 1997, Fiscal
Agents Money Management Newsletter