Practical RRSP advice from Gail Vaz-Oxlade

By Helen Burnett
Globe Investor magazine online, February 27, 2008

This year's RRSP season will be drawing to a close at the end of the month, and while as many as half of Canadians contribute to a registered retirement savings plan, one-third of those who planned to invest are expected to wait until just before the deadline for tax-deductible contributions, says RBC Asset Management.

While recent market volatility may have been on many investors' minds, this isn't something that should worry those with a long-term RRSP strategy, says financial expert and speaker Gail Vaz-Oxlade (www.gailvazoxlade.com), host of Slice network's Til Debt Do Us Part. Here are other things to keep in mind when considering making a contribution to your retirement portfolio now and throughout the year.

There is no market issue when it comes to using an RRSP

If you are committed to a long-term retirement planning strategy, "whether the market is up or down is irrelevant," says Ms. Vaz-Oxlade. "You're just going to keep buying whatever it is you're committed to." And the fact that the market has gone down means you're going to be able to get more of what you were buying, she says. But if you are feeling some sort of panic, says Ms. Vaz-Oxlade, then perhaps you are not in the right kinds of investments. This may come from one of two places: either the sense that 'I can't sleep because the market is jittery,' which means that your personality and products are badly matched, or the 'I'm going to need this money soon and I can't afford for it to go down in value' point of view, which means the investment horizon and choice of investment vehicle are badly matched, she says.

Consider catching up on unused room through regular contributions rather than by borrowing

Ms. Vaz-Oxlade notes that she is not a fan of RRSP catch-up loans. "Money is an exhaustible resource and we have to be very careful about how we allocate it," she says. "If you're having trouble coming up with an RRSP contribution so that you have unused room, why would you add an interest cost to your budget?" Ms. Vaz-Oxlade suggests that if you are considering catching up your unused RRSP deduction room, get online and find a loan calculator to figure out how much monthly payments on a loan would be at zero per cent, and then "make that monthly contribution to your RRSP and save yourself the interest."

While there is no standard answer that applies to everybody, as everyone's circumstances are different and there are individual situations where borrowing to contribute to an RRSP makes sense, says Ms. Vaz-Oxlade, if you can't pay off the loan within six months, then it wouldn't be for you.

Aim to end up with the same amount of retirement savings as your partner

One of the most important things that people often overlook, says Ms. Vaz-Oxlade, is ensuring that you and your partner are going to end up with the same amount of retirement savings, so you can use income splitting to your advantage. "In essence, if you both take less money and your family income is the same, you'll pay less tax," she adds.

Investors should be contributing to an RRSP throughout the year

The problem with saving a contribution until the end of the year is two-fold, says Ms. Vaz-Oxlade. First, somewhere along the line you'll be tempted to spend it. And the longer you take to put it into the RRSP, the more time you lose compounding, she says. "Starting in January versus waiting until the following February … can make a big difference to your portfolio over the long term," she says.

A lot of people are put off by the idea of how much they're going to need for retirement, brought on by the thought of the 'million dollar number' that is often mentioned. "It's more important that you are saving, it's not important what the end result is until you're getting closer," she adds. "My overall message, I guess, would be: Don't sweat it so much, just know that you have to save, choose an amount that you can manage, put it in your budget, save it every single month, be religious about it."

Special to The Globe and Mail