How to save more for your retirement
Q. I can afford to contribute more to my RRSP. Should I do that even though the stock market is down?
A. Yes. The first rule of saving for retirement is to contribute all you can to every tax-favoured savings plan for which you're eligible. That's so important it's the second and third rules of saving for retirement as well.
It's crucial to get into the habit of saving money instead of spending it all. We form habits by doing something over and over again. Contribute more to your plan this year and it will be easier to do the same next year, and easier still the year after that. If you break the savings habit each time the stock market takes a dip, you risk never getting back into the habit of saving for retirement on a consistent basis.
And don't forget the tax breaks. Every penny contributed to an RRSP reduces your current income for tax purposes, no matter what the stock market is doing.
If your risk tolerance is on the low side, contribute less to stock funds and more to bond and money-market funds, or guaranteed investments like GICs. But stay in the habit of contributing all you can to your retirement savings plan - no matter what the stock market is doing.
Q. Where can I find extra money to contribute
A. Are you buying more - or more costly - items than you used to? Are you eating out often? Review your spending for the past year by looking over credit-card bills, cancelled cheques and bank statements. Look for expenses that are bigger than they used to be. Brainstorm with your family about the frills you can live without. Use a money-management program such as Quicken or Microsoft Money. Sign up for electronic banking so you can see all the transactions in your account as often as you'd like. Remember that each dollar you save today may grow into many dollars by the time you retire.
Q. How much difference can a few dollars a week make anyway?
A. A lot more than you probably think. Say retirement is 30 years away and you manage to save an extra $10 a week this year to add to your plan - $520 for the year. Invested over 30 years at a 6% annual return, that $520 will grow more than 550% to $2,987.