Start Young to Build RRSP and Tax-Free Savings

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the Agricultural Producers Association of Saskatchewan.

Article provided by the Farm Business Consultants

One option is to get a head start on next year by starting regular payments now and watch funds grow compounded over a longer period in tax-sheltered ease.

A poll by ScotiaBank released in January 2014 shows a surprising decline in RRSP participation last year.

Only 31 percent of Canadians said they planned to contribute to a retirement saving plan for the 2013 tax year compared with 39 percent in the previous two years.

It is not clear why the numbers dropped. One reason might be that people decided the new Tax-Free Savings Account met their needs better.

The ScotiaBank poll also said withdrawals from plans were up four percent to 40 percent. People might be taking advantage of the federal home buyers’ plan to build or buy a first home partially financed through RRSPs.

Covering expenses and paying down debt are also leading causes of tapping the retirement nest egg.

This could cause problems in retirement. People who really want their investments to grow must start as early as possible.

Essentially, a dollar invested today is worth more than a dollar invested tomorrow.

So, how early is early?

A new survey suggests that more than two-thirds of those polled believe they would have enough to retire if they start saving at 25.

Some advisers recommend starting sooner. Young people paid for odd jobs on the farm in the summer or off-farm work while in high school should file an income tax return to start building much needed RRSP contribution room earlier.

However, it can be difficult for a young person saddled with school costs, high student debt or a difficult job market to put money away.

Nevertheless contributing even a small amount such as $20 a month at the beginning can yield big dividends down the road.

Young people have the advantage of time. Larger and larger amounts of savings will be required to keep them on track for retirement if they delay their start time.

If they have a lot of contribution room but little cash to put away, what about borrowing the money for their RRSP contribution? This is a strategy that can work for some people but not others.

Borrowing may be a useful strategy if their contribution is going to earn a refund and the cash reserves plus the refund are sufficient to pay off the entire loan within the year the loan is taken out.

It is never too early to seek advice on planning for retirement, but how can it be done if the individual can barely afford the investment?

Perhaps a parent, aunt, uncle or older sibling can help.

The next Christmas or birthday present could be a financial gift to fund retirement.

Grant Diamond

For more information, visit us at or call 1-800-265-1002 to book your free in-person tax consultation.