Financially Speaking

Every year around this time, you scramble to find ‘extra’ money to make your contribution to investments held in your Registered Retirement Savings Program (RRSP). And, while maxing your contribution each year is the right path to maxing your savings held in your RRSP for retirement, finding that ‘extra’ money by the RRSP contribution deadline can be stressful. But stress not next year – there is a much better way: a Pre-Authorized Contribution (PAC) program.

PAC-ing for a more comfortable retirement is simple: just set up a regular payment plan – usually an automatic withdrawal from your bank account — in an amount you can afford. Your investment starts growing right away, meaning it will likely enjoy more growth than if you wait until the end of the year. Plus, you may benefit from the magic of compounding returns which can produce a larger nest egg than contributing a lump-sum at the RRSP deadline.

A regular PAC becomes part of your budget as a monthly cash outflow that you probably won’t miss and when markets decline, automatic contributions allow you to purchase more mutual fund shares or units, resulting in a lower average cost over the long term.

Here’s an example of the power of PAC-ing:

• Set up a regular investment plan – say, $250 into your RRSP-eligible investments on the first of every month.
• At a compound annual return of 6.5%, you’ll have $278,000 of pre-tax assets after 30 years. (The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment.)
• If you wait until the end of each year and invest a lump sum of $3,000 into your RRSP eligible investments (presuming you can up with that large chunk of cash on short notice) you’ll have only $259,100 of pre-tax assets after 30 years.
• By PAC-ing each month, you could potentially add $18,900 to your retirement fund – and it doesn’t cost you an extra penny!
• In addition to the extra long-term tax-deferred appreciation, your contributions also deliver a nice tax benefit for the current tax year.

PAC-ing removes RRSP deadline stress and enhances your retirement income. Talk to your professional advisor about PAC-ing and other sound investment strategies or achieving all your life goals.