SLIDESHOW: 5 Excuses for Not Contributing to Your RRSP
- One Year Won't Make a Difference: I Have Plenty of Time Before Retirement
Each year you're invested offers the possibility of compound growth. The more money you put in the pot each year, the greater your potential growth. So delaying by even one year isn't wise. Keep increasing your contributions yearly, even if it's only by a small amount.
- I'll Play the Stock Market Later & Make Up for Lost Time
You are certifiably nuts if you think you can chase big gains and get them without also taking on significantly more risk. And more risk could turn into huge losses exactly when you were hoping to retire. That could mean significantly delaying retirement and working until poor health or old age forces you to quit. At that point you may still lack enough funds to support yourself. Plus, fees from overzealous trading in a retirement account could eat into your returns and do you really want that kind of pressure late in life, when you should be winding down.
A diversified asset allocation based on your specific needs and investing style should allow you to take advantage of gains across several investing categories while still mitigating risk. Steady contributions coupled with steady increases of your contribution level will help you sleep easier at night.
- I'm Contributing to My Kids' RESP Instead of My RRSP
Your kids can apply for scholarships and student loans. They can go to community college for two years before moving on to university. They can get a job and attend college part-time or even take a year between high school and college to work and save money. Their lives are still ahead of them. Retirement doesn't work the same way.
Key point: there are no RESPs, scholarships or low-cost, government-subsidized retirement loans for retirees. Taking a year to save extra money merely means delaying retirement and doing the same thing you've done for the past 40 years. And that's only if you're healthy enough to do so.
If you can afford to execute your retirement strategy in full and still save money for your kids' RESP, great. But if you have to choose between them, this is a time to be selfish. Your kids will thank you when you're at retirement age and you can babysit the grandchildren because you're not at work!
- I Didn't Get a Raise So I Don't Have Extra Money
If you do the math, increasing your contribution by a couple of percent hardly makes a dent in your pay. For example, if you make $50,000 per year, a one-percent increase in savings works out to be approximately $42 extra, pre-tax savings per month. If you make $100,000 per year, it's approximately $84 extra, pre-tax savings each month. You could likely make small cuts to your monthly budget (pack lunch for instance) that would easily allow you to accommodate a small increase.
On the other hand, even a small amount of money can grow much larger with time and the benefits of compounding.
- The Stock Market is Too Unstable to Bump Up Contributions
The market is what it is. The ups and downs are constant, but if you consistently make contributions, you'll be in a good position to reap the benefits of dollar-cost averaging. And if you increase your contributions each year, even by just a little, you could potentially set yourself up to reap more benefits.