Catherine Mann
Life Reporter
As the chaos of tax season approaches, students interested in investing in a registered retirement savings plan (RRSP) must file contributions by the March 1 deadline.
“The earlier you start investing, the better,” said Shani Furtado, Freedom 55 financial security advisor. “When you’re younger you have fewer responsibilities, and you have an even longer investment horizon. This means that when you retire you’ll get a greater return.”
By contributing to an RRSP, the Canadian government rewards those who save for retirement by giving them a tax benefit. All RRSP investments have a tax-deferred growth, which means that any profit incurred resulting from interest on an RRSP is not taxed as income. A second tax benefit is a tax credit. This means that your taxable income is reduced by the amount you contribute, bringing you into a lower tax bracket.
“By law, you are allowed to contribute a maximum of 18 per cent of your yearly income,” said Furtado.
According to a 2004 poll conducted by the marketing firm of Ipsos-Reid, nearly 53 per cent of Canadians between the ages of 18 and 34 have an RRSP.
Although retirement may seem decades away, it is not uncommon to have students thinking about their future and developing a financial plan.
“It was suggested to me by my bank that planning for my future would be a wise decision,” said first-year public administration student Patty Devlin, 24. “Since I didn’t have a lot of financial responsibility at the time, I took part of my summer savings and put it toward a tax-free RRSP. That was a strong enough incentive in itself.”
Despite the urge that many RRSP investors have to achieve financial independence, the idea of investing in a retirement plan is not feasible for everyone. According to Holsee Sahid, Humber’s financial services manager, students who are on OSAP or have obtained a loan for assistance with their living expenses should not invest yet.
“If you’re on OSAP, or obtained an education loan from another financial institution, you should not be using it toward an RRSP. Those loans were meant for your living expenses, and educational costs.”
For students who are ready to invest in their future, Furtado suggests dealing with an trustworthy advisor.
“Have a relationship with your advisor. Feel comfortable with them because they’re dealing with the intimacy of your finances.”