my money
At a Glance
Helping You Understand Financial Planning and Investments
Strategies for RRSP success
The registered retirement savings plan (RRSP) contribution deadline is fast approaching, with March 1, 2008
being the last day you can make a contribution and deduct it on your 2007 tax return.
Your RRSP represents the most effective way to save for retirement on your own with the double benefit of
tax-deductible contributions and tax-sheltered investment earnings. Maximizing your RRSP contributions each
year is one of the best ways to help you prepare financially for retirement.
If you’re considering a lump sum contribution to top up your 2007 RRSP savings, here are some strategies
you may want to consider.
Check your contribution limit
If you haven’t checked your RRSP
contribution limit in a while, you
may be surprised to find you have
more room than you think.
There are a couple of reasons
for this. First, any unused RRSP
contribution room gets carried
forward from previous years.
Even if the amount you carry
forward each year is small, it can
add up quickly. So you may have
stockpiled a significant amount
of RRSP contribution room
without even knowing it.
will continue to rise in future
years (see chart on next page).
While the maximum contribution limit for 2006 was 18% of
your previous year’s earned
income to a maximum of $18,000,
the maximum for 2007 has
jumped to $19,000. This dollar
limit is increasing by $1,000 a
year until it reaches $22,000 in
2010. If your earnings were high
enough to hit this dollar maximum in previous years, you may
have more room this year than
you expected.
Second, annual RRSP contribution limits have been rising each
year for the past several years and
So check your RRSP contribution
limit on the Notice of Assessment
that was sent to you by the Canada
Group retirement services are provided by Sun Life Assurance Company of Canada, a member of
the Sun Life Financial group of companies. © 2007, Sun Life Financial. All rights reserved.
Revenue Agency when you filed
your tax return last year. If you
have more room than you realized,
consider making use of it before
the 2007 contribution deadline.
Continued
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Avoid parking
contributions
If you’re like many people who
make a last minute RRSP contribution, you may decide to park it
in a safe, low-yield money market
or guaranteed fund while you
decide on a longer-term investment for your savings.
While this sounds like a reasonable strategy, it’s easy to forget to
“unpark” your funds and keep
them in low-yield investments far
longer than you intended. While
holding cash investments can be
useful for saving for short-term
goals, their relatively low returns
combined with the effects of
inflation make this a poor longterm strategy.
If you have an investment horizon
of more than five years, you
should ensure that any lastminute RRSP contribution you
make is working immediately
towards your long-term financial
goals. For most people, that
means investing in a diversified
mix of investments with some
longer-term growth potential.
Recycle your refund
Revisit savings rate
Because RRSP contributions are
tax deductible, you may receive
a tax refund when you file your
2007 tax return. One of the easiest
ways of ensuring you maximize
your future RRSP contributions is
to take your RRSP refund for
2007 and contribute it as a head
start on your 2008 contributions.
If you have a lot of RRSP contribution room at year’s end, you
may want to consider increasing
any payroll contributions you’re
making to a group RRSP to avoid
the need to make last minute
contributions in the future.
There are a couple of benefits to
this strategy:
Because your contributions
are invested earlier, they have
that much longer to generate
and compound investment
earnings.
You are unlikely to miss
the money you contribute, as
it comes from a refund of
taxes that you’ve already paid.
And you’ll need to make
much lower contributions for
the remainder of the year
since you’ve made this contribution early on.
Smaller contributions spread
over a longer time period will
likely have less impact on your
lifestyle than trying to find a larger
amount once a year to make
a lump sum contribution.
And you’ll have more of your
contributions invested and working
for you earlier in the year when
you make them on a regular basis.
This strategy also allows for dollar cost averaging, an investment
technique based on investing
your money a little at a time. It’s
a way to reduce the risk of buying
securities at their highest value.
So resist the temptation to spend,
and recycle any refund right back
into your RRSP.
RRSP contribution limits are increasing
Year
2006
2007
2008
2009
2010
i
RRSP contribution limit
$18,000
$19,000
$20,000
$21,000
$22,000
If you have a general question or suggestion about this newsletter, please send an e-mail to can_pencontrol@sunlife.com or write to my money
At a Glance Newsletter, Group Retirement Services Marketing, Sun Life Financial, 225 King Street West, Toronto, ON M5V 3C5.
This bulletin has been created exclusively for you. It addresses issues to help you with your financial planning and investments, and cannot be
reproduced in whole or in part without the express permission of Sun Life Financial.
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