Thursday, December 15, 2011

My RRSP Strategy for 2012

A couple of weeks ago, I mentioned that I was looking at the idea of a RRSP Catch up Loan to assist me with some tax benefits. I received a comment that they were a very, very bad idea. I'm not one to jump to conclusions, so I took this under advisement and did some research. Of course, I turned to Gail's blog.

Borrowing more money while you still have debt is never a good idea. Borrowing money to invest for the long term has some benefits, but not enough for me to consider it at this point.

Borrowing to contribute to an RRSP only makes sense if you’re in the highest tax bracket AND you can pay off the loan within one year WHILE making monthly contributions to your current year’s RRSP. ~ Gail
So what's a gal to do? I get that borrowing the twenty something thousand dollars in contribution room I have available is not really an option for. Sure, I could borrow it and pay it back within a year, but my cash flow will take a huge hit, and I just can't live like that, nor can I expect my family to.

Taking on too much debt for the sake of some other objective is a sure way to mess up your cash flow and rob you of sleep. ~ Gail
I value my sleep too much. I don't do enough of it as it is. The sense of peace I have knowing that I am doing the best I can financially is not something I'm willing to give up either.
The most important part of my financial well being is to find balance. Saving for the long term takes time and discipline. Time I have. Discipline, not so much. But I'm getting better.
If you want to catch up your RRSP unused contribution room, trim back on your expenses or make enough extra money to sock away what you want. Don’t borrow it. ~ Gail
Oddly enough, I can hear her voice saying this directly to me. It's like she's right here in the room with me, telling me not to be a dummy, and that there is a better way to do this.
On Gail's advice, I will not be taking out an RRSP loan, catch-up or otherwise. My goal for 2012 will be to put $2500 into my RRSP, or $208 per month. That's the maximum amount of loan repayment monthly that I would be comfortable making. OK, maybe a little outside my comfort zone, but whatever. If for some crazy reason I am unable to make that 'loan' payment in a given month, my credit history won't go to hell in a hand basket and I won't be getting any nasty phone calls from the bank. It would mean that I would just have to deposit that much more the following month. I'll have no interest costs with this method, and all my money will be working for me right from the get go.
I feel like I'm behind the eight ball with my retirement contributions. I may very well be. But if I don't start somewhere, I will never be able to retire, and that is just not an option. With how much I've contributed to CPP as a self-employed person, and no pension to speak of, when I'm 65, I'll be eligible for about $32 per month. Lol!

Aim to set aside 10% of your net income every year until you retire. ~ Gail
The thing with RRSPs is that they market them to make you feel like you aren't contributing enough, and that without the help of financial institutions, you have no hope in hell of ever accumulating the astronomical cash projections that they say you need to have. This puts people in one of two mindsets. They either fall for the hype and take out 20 year RRSP loans without ever really getting ahead, or they give up hope of ever retiring comfortably, and choose to ignore the situation.
I'm choosing neither. I will forge my own path, by making contributions on my own schedule that will take into account that my income fluctuates greatly. I have goal number in mind for 2012, and I will make sure I hit that goal at all costs. I'm working on all our financial goals for 2012, so adding this in will be another part of the budgeting process for us.
What's your retirement savings strategy? Do you have RRSPs or have you ever used a RRSP catch up loan? I'd love to hear about your experiences with this.


  1. I thought about doing this the past couple days as well, but I think I'd worry too much about the loan payment. What if something happened and I couldn't pay it back? That's my worst fear. So instead, I'm just making as big of rrsp contributions each month that I can.

  2. My plan is to find a rich old man who would like a trophy wife & go from there... ;) Seriously though, I don't know... :/ I know nothing about that stuff except that hubby contributes through work. Really need to get my hand out of the sand with this one I guess... *blush*

  3. I borrowed $ once or twice at 0% interest but it had to be repaid in one year. But it was only the one year's worth of contribution room as I've always put in the max though I'm done with RRSPs now as it makes more sense for me to put $$ into TFSAs as I'm getting close to retirement and don't want to pay too much penalty when I withdraw the money once I retire. They REALLY get you when you withdraw - if I take out $5000 once a year it's 10% withholding tax so unless that $5,000 has been accumulating a lot of interest over time what you gain is lost when you withdraw. It's a balancing act for sure.