RRSPs: Strategies for late starters

Many baby boomers haven’t done much thinking about their retirement plans. Now they see the end of their working careers in the distance and are beginning to get antsy.

This is especially true for those without a fat pension plan. That includes almost everyone in the private sector, except auto workers and members of similar strong unions.

Late starter tips
If you’re just now getting serious about your RRSP, here are a few tips to help move you in the right direction.

  1. If you don’t have an RRSP, open one immediately.

  2. Make the maximum possible contribution every year. You can’t afford half measures.

  3. Take an RRSP loan if necessary. You need to get the maximum possible amount into a tax shelter as quickly as possible. If you can repay the loan within a year, the math favouring this type of borrowing is compelling, especially now with interest rates so low. Just remember, you can’t deduct the interest on RRSP loans.

  4. Push your savings to the limit. I calculate that if you’re over 50 and haven’t done anything yet, you need to save about 30 per cent of your gross income each year to build the capitaneeded to maintain your standard of living when you reach 65. That sounds daunting. But by now your mortgage should be almost paid off, the kids should be moving out and more money should be available. Use it wisely.

  5. Take more risk. I know that sounds like strange advice for an older person. But the plain fact is, with interest rates so low, you can’t afford to keep your money tied up in bonds, term deposits and the like. You have to shoot for better returns. That doesn’t mean you should become a stock market speculator, of course. But a balanced portfolio with a weighting towards equities should be seriously considered.

Remember, you don’t have time on your side any more. Get cracking.

Adapted from the January 28, 2002 edition of the Internet Wealth Builder.