There seems to be more and more commercials popping up featuring grey-haired models taking part in activities such as sitting in outdoor bathtubs, frolicking at cottages, or simply gazing deeply into each other’s eyes with a joy that one is likely meant to infer can only be achieved by financial freedom. It must be RRSP season.
The first 60 days of every new year are affectionately known as “RRSP season” by those in the financial industry. The reason for this title is that Canadians are able to contribute to their RRSPs during the first 60 days of a calendar year and have the contributions fall under the previous year’s totals. This year February 29th is the last day people can contribute to their retirement or they should forever hold their peace. Except that’s bullocks.
Give Us Your Money
The insanity that is RRSP season is not surprisingly driven entirely by the people that seek to make profits off of it. Anyone with a basic handle on math could tell you that making periodic contributions to a registered plan (TFSA or an RRSP) would be a better choice than procrastinating until the last minute and then trying to scratch together the money to fit in under an arbitrary deadline that is being heavily advertised for no reason other than to generate corporate profit.
The only time this deadline should really matter is if you make enough money, and more importantly, saving enough of it – that you might max out your RRSP this year and the next year. In that case, planning your contributions around the deadline is worth your time. For the vast majority of us however, we have so much room within our RRSPs that whether we put the money in now, or the following contribution year, it will make almost no difference to what we have in retirement.
RRSP Season is a Canadian Heritage Moment
Clearly deciding which contribution year to put money into should be amongst the least of our worries. Yet our financial institutions – which have proven to be some of the most profitable businesses in the world – keep pouring money into RRSP advertising during this time of the year. “Why might they do such a thing?” one might reasonably ask?
Well, there are three reasons really that our financial institutions still find it extremely profitable to inundate us with a RRSP barrage this time of the year:
1) Our fear of becoming old and penniless. No one wants to have depend on others as they enter their golden years, and everyone keeps telling them they need $3.7 million or so to realize the retirement that “they deserve”, so they better get saving right? Credit card debt be damned…
2) Our greed for having what the grey-haired models have. Who wouldn’t want to be 55-year old that looks 20 years younger and apparently has nothing to do all day except golf and sit on a beach? If we don’t achieve that lifestyle our TVs tell us we must be failures…
3) The immediate gratification that comes with your nice tax-return bonus cheque. It’s so cool the government gives us a kickback just for doing the right thing and contributing to our own retirements…
The problem with these assumptions of course are:
1) You probably don’t need nearly as much as the financial industry has convinced you that you do. If you have no debt on the books, you probably don’t need to be a multi-millionaire to play with your grandchildren and go to Florida for a couple of weeks.
2) Unless you work out two hours a day, have great genetics, and eat what everyone knows they should, then your RRSP won’t allow you to live like those commercials suggest you must. If you don’t look like the people on TV that are your age, why would you like the people on TV that are 55 when you get to be 55?
3) The tax refund is actually just your own money coming back to you that you would have paid in taxes. Don’t worry – the government will still take back a lot of that money when you withdraw your RRSP nest egg.
Celebrate RRSP Season Year Round
Hitting on key motivational hot spots such as fear and greed play on sub-conscious instincts most of us aren’t even aware we have. It’s ruthlessly effective and blinds most Canadians to what is really going on with their money.
Financial institutions don’t invest millions of dollars every year to remind you about “RRSP season” out of the goodness of their heart and worry that your retirement won’t be of the grey-haired-god variety. They do it because to most of them “RRSP Season” is actually code for sales.
Instead of panicking to buy some RRSPs before an arbitrary deadline this year, do yourself a favour and consider for the long haul. It is the easiest route for the average Canadian investor to take when it comes to saving for their retirement.
Better yet, go the distance and incorporate a proper savings strategy into a Financial Life Plan. Let’s do away with the Insanity of RRSP Season and replace it with a regular and disciplined approach to preparing for life now and retirement in future. It’s all about Keeping Life Current.