February 21, 2013
Pre-authorized RRSP contributions pay off large in long run By Investors Group Submitted article
Pet Photo of the Week This is my chihuahua Lavi. She takes advantage of the sunny winter mornings!
The RRSP contributions deadline is coming up fast. And while you may have every good intention of matching or increasing your contribution from last year – it can be difficult and stressful to come up with a significant amount of cash in short order. Here’s a better plan for next year: a Pre-Authorized Contribution (PAC) program is a great strategy for getting the maximum amount of money into your RRSP eligible investments. When you PAC, you are simply setting 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 removes the temptation to spend those available dollars for personal consumption. When markets decline, automatic contributions allow you to
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Denean Arntson, CFP Financial Consultant 9319 - 100 Avenue Fort St. John, BC V1J 1X8 Ph: 250-785-4312 Fax: 250-785-2344 Email: email@example.com RRSPS • INVESTMENTS • INSURANCE • RESPS • MORTGAGES
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Denean Arntson, CFP TM Trademark owned by IGM Financial Inc. and licensed to its subsidiary corporations. Financial Consultant Mortgage products are offered through I.G. Investment Management Ltd., Investors Group Trust Co. Ltd. is a trust company licensed to lend money in all jurisdictions in Canada. Clients with mortgage inquiries will be referred to an Investors Group Mortgage Planning Specialist. Insurance products and services distributed through I.G. Insurance Services Inc. Insurance license sponsored by The Great-West Life Assurance Company.
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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: • You set up a regular investment plan to invest an amount you can afford – 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.* • 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 the stress of finding scarce dollars as the RRSP deadline looms and enhances your retirement income opportunities. It’s a good investment strategy and there are many others. Your professional advisor can help you PAC up all your life goals in one sound financial plan. *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. This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.
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