Getting ready for retirement, what you need to know about RRSPs

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WATCH ABOVE: The RRSP deadline is fast approaching, but are they the best option for everyone? – Feb 27, 2017

A new study commissioned by H&R Block suggests that only one in five people will contribute to a RRSP before this year’s deadline.

Clint Gifford, a partner with Virtus Group chartered professional accountants & business advisors in Saskatoon, however said about 50 per cent of people who are employees who file with the firm typically contribute.

“RRSPs are good for anybody that have the money that they want to invest that they don’t need for a long time,” Gifford said.

READ MORE: Phoenix employees to face a new hurdle: tax season

Gifford said a good rule of thumb is to put 10 per cent of your yearly earnings aside each year to help secure your financial future.

“It’s missing out on the opportunity, if you don’t contribute to your RRSPs,” he said.

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“It doesn’t mean that you can’t later but the sooner you do it, the sooner you can start the tax-free growth going for you and the sooner you get the money saved on your taxes.”

Getting ready for retirement, what you need to know about RRSPs - image

The deadline to contribute for the 2016 tax year is March 1, leaving very little time for folks to put away money towards their retirement – money many pledged to sock away every month but just don’t get around to doing it.

Gifford suggests instead of scraping together what you can or taking out a loan, you may want to shift some money over from your Tax-Free Savings Account (TFSA), meant for short-term investments.

“Depending on your tax bracket you can get up to 48 per cent of the money that you put into your RRSPs back as a refund from the government.”

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READ MORE: Canada should raise its retirement age, economic advisers suggest

Equally as important is what you do with that possible refund, Gifford suggests for the biggest bang for your buck to reinvest the money.

Get a head start on your RRSP contribution for next year or pay down debt with high interest rates whatever you do avoid one of the biggest money mistakes Canadian make with that new found wealth.

“Wasting it, blowing it on something that you don’t really need just because you have the money in place.”

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