During this RRSP season, Canadian pension plan sponsors should consider reminding their members about the important role an RRSP plays in their retirement.
In an era where DB plans are on the decline and sufficient returns are not guaranteed from a DC plan, a well-invested RRSP becomes a key piece of retirement income. “People who long believed that their pension plan would be sufficient saw their savings suffer setbacks related to the economic crisis, in addition to feeling the effects of weak returns generated by guaranteed investments. As such, personal savings are more important than ever today in order to avoid a potential lack of sufficient income at retirement,” says Denis L’Hostie, senior manager, financial planning, with Laurentian Bank.
L’Hostie says Canadians who view their RRSP simply as a place to stash extra income in order to reduce their income tax are missing the big picture. “The RRSP should be seen, first and foremost, as a long-term strategic savings tool intended to provide savers with a safety cushion for once they stop working.”
According to L’Hostie, the best way to save in an RRSP is to spread out contributions over the course of a year, ideally through automated contributions. “In so doing, we not only increase our savings, but we also reduce the stress associated with scrambling to find the sums to contribute at the end of the year,” he says.