1. Start making your maximum RSP contribution every year
A common reason why people fall behind is they don’t get into the habit of making their maximum RSP contributions every year. It can be difficult to come up with your maximum RSP contribution all at once. For some people, the solution is to start a pre-authorized contribution plan, which provides a disciplined approach to making monthly or quarterly RSP contributions.
2. Catch up on your RSP contributions
Investors who don’t regularly maximize their annual RSP contributions miss out on significant tax-deferred growth potential. The good news is that you can catch up on your RSP contributions as a result of the “carry forward” rule. Investors are able to carry forward any unused RSP contribution room, since 1991, indefinitely. For example, if your RSP contribution limit was $14,500 in one year, but you only contributed $4,500, you could contribute $10,000 above and beyond your annual contribution limit in any future year.
3. Get out of debt
Lingering debt is a major reason why many high-income earners don’t have enough saved for retirement. When you’re faced with a constant barrage of credit-card finance charges, it can be difficult to find money for an RSP contribution. Generally, the best strategy is to start reducing your higher-interest debts, such as credit cards, then focus on lower-interest debt like a mortgage on your principal residence. If you can’t pay off the credit cards right away, consolidating your debts with a lower-interest loan may be the solution.
4. Go into debt – with an RSP loan
Going into debt can actually help you get back on track. In certain situations, it makes sense to take out a loan to top up your RSP. For example, if you have unused RSP contribution room, you can get some text loans to catch up, then use the tax savings to help repay the loan. Normally, this strategy is to your advantage when you’re able to repay the loan within a year, since the interest paid on the RSP loan is not tax-deductible.
5. Adjust your asset allocation
How fast your retirement portfolio grows is largely determined by your asset mix – the balance between cash, bonds and stocks. In general, stocks provide greater returns than bonds and cash over the long term, but also greater short-term volatility. If you have enough time to allow the short-term ups and downs to balance out – five to 10 year’s minimum – then you may want to consider increasing the proportion of stocks in your portfolio. Increasing your foreign content will help as well. Because this strategy involves a higher risk tolerance, you should work together with a professional advisor to put it in place.
6. Save outside your RSP
For people who haven’t maximized their RSP contributions over the years, it can come as a surprise to learn that even if they had, it still might not be enough. To compensate, many individuals now regard their RSP as just one part of an overall retirement portfolio, which also includes non-registered investments.
While it’s difficult to match the tax advantages offered by an RSP, including the tax savings and tax-deferred growth, there are tax-efficient strategies for investing outside your RSP. For example, different investments are taxed in different ways. Only 50% of capital gains from stocks are taxable at your marginal rate, compared to 100% of interest income and dividend income from Canadian corporations also receives preferential tax treatment due to the dividend tax credit.
7. Retire in a low-tax jurisdiction
Where you choose to retire can have a significant impact on your retirement income and how long your savings will last. That’s because certain provinces have lower property and income taxes than others. You could also consider retiring outside Canada in a jurisdiction with lower taxes.
8. Adjust your current lifestyle
Most of the catch-up strategies described here require some personal sacrifice. It can be as simple as taking fewer vacations or selling your second car. Or it may involve moving from your current home into something more affordable. Bottom line, the choice is yours.