It's never too late to start investing in RRSPs and TFSAs

July 19, 2017 Allan Leung, CFA Senior Manager, Wealth Products

There is plenty of room for investment growth after 40

It’s a familiar story: an expert in the media sounds the alarm about Canadians not saving enough for retirement. The message is, start early or you’re sunk. But even during our current economic woes the old adage still applies; the best time to start doing something is now. While starting early is great advice for those in their 20’s or 30’s, if you’re closer to 50 and haven’t started saving, you probably feel a little nervous about your financial future. But the thing is, your Registered Retirement Savings Plan (RRSP) enjoys tax-free investment growth until age 71, so even if you’ve recently hit the big 5-0, you still have 21 years of tax-deferred growth for your RRSP. This means that you don’t have to pay tax on your contributions or the interest until you take it out, preferably when you’re retired and your tax rate is much lower.

Compound returns are on your side

The 7-10 guideline can help you see the potential of your investment. If your investment grows 7% each year, your money will double in 10 years. Conversely, if your investment has a 10% annual return, your money will double in seven years. When it comes to RRSPs, your contribution room has been piling up since you got your first job, so a large, lump-sum contribution is possible. Of course, a large lump sum RRSP contribution will generate a nice tax refund. Re-invest this refund and you will be well on your way.

Try a TFSA

If you aren’t eligible to contribute to an RRSP, or have very little contribution room, you have another option: a Tax-Free Savings Account (TFSA). Available since 2009, TFSAs have become a popular alternative to RRSPs because you don’t pay tax when you withdraw the money. With an annual contribution limit of $5,500, however, your TFSA may not provide enough contribution room to fund your retirement on its own.

If you need to catch up on your retirement savings, ATB Investor Services advisors are here to help. ​​​​​​​​​​​



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