Retirement Savings, RRSP Savings for Financial Freedom
Retirement Savings Season, Savings for Freedom or RRSP is here. You must act before March 1, 2006 to get a tax deduction and a tax refund check. Most people understand financial freedom as an RRSP contribution. Trust me, the RRSP Contribution is indeed the first step. It can be equated to Grade I in the Grade XII school system. Then our Mortgage Freedom and Insurance Investment would be equated to a college and graduate education in finance. In every undertaking, one must start somewhere. Let’s focus on the basics in this RRSP Fast Track to Mortgage Freedom.
The bank teller will give you the basic annual RRSP contribution of $1000.00 to $4000.00. The loan must be repaid in one year. Here there is no planning. But this is what everyone does. With an additional payment of $200 to $400.00 per month on the RRSP loan, we struggled for a year or two with this plan. Our finances are stuck, stuck. We find it too difficult. So we give up. This savings thing doesn’t work!!
An alternative savings plan, favored by those who preach no loans, is to have payroll deductions, like the Canada Savings Bond Plan. As ambitious savers, we’d be okay with a $200 or $300 payroll deduction from each paycheck. We would try for a few years. Then, after the first real family emergency, we’re stuck once again. Net salary is not enough. We give up. We must find something better. So we go looking and find new plans. The RRSP Recovery Contribution Loan is the next stop on our journey to savings freedom.
The idea of the Catch-up Contribution Loan is to find a lender that will allow a Catch-up Contribution Loan of $10,000 to $25,000.00 RRSP. With this plan, your savings start with a more respectable retirement or RRSP investment. Let’s say $20,000.00. We get a tax receipt and a huge tax refund check, for say $7,000.00 or $8,000.00, whatever our marginal tax rate is. Usually, we are so delighted with this unexpected windfall, that we spend it. ENJOY NOW!! Forget about the future!!
Let me explain the idea of catching up on your retirement savings contribution. What we’re referring to here is the amount of money the IRS or Revenue Canada allows everyone to contribute to a 40K or RRSP. The formula is detailed in the CRA rules as an example dictated by the Canadian department of finance. Simplified, these rules allow about 18% of your prior year income to be contributed as retirement savings or an RRSP up to a maximum of $16,500 for this year, 2006. If you stopped making a contribution to the RRSP for any year, then the CRA maintains a checking account of your unused Retirement Savings contributions. They report your “Unused Quarter Tax” each year when answering your Income Tax Returns. Most people ignore that part of the ASSESSMENT NOTICE as the document is called here. But it’s very important because it shows how much savings you could contribute to a retirement savings fund if you could find the money.
The good news is that a good financial advisor will get you that money. Lenders compete to offer RRSPs and investment loans at incredible rates. These bargain rates start as low as PRIME MINUS ONE PERCENT. This is just one example of numerous takes on the same subject. With an experienced adviser, you’ll get tips to follow at the college level, if not the graduate level. You could pay the same $200 to $250 each month in a savings or RRSP loan and control a retirement savings or RRSP investment of $20,000.00. Compare this to the Bank’s typical savings plan where your RRSP contribution of $4,000.00 must be repaid in a year at a monthly loan payment amount of more than $300.00 each month. Your investment in freedom, one minute $4000.00.
The Mortgage Freedom Techniques and Smart Mortgage Action Guide show more sophisticated college-level strategies. Time does not allow long and detailed explanations found on the blog: http://www.mortgagemoneyletter.blogspot.com. Simply put, these plans start with accessing your home’s equity in a Smart Mortgage Prepayment Plan. Because of access to surplus cash, maybe as a home equity withdrawal, maybe from the line of credit, we just make another big RRSP contribution from an RRSP loan. You must understand that these loans are extremely easy to get. This is the time when most of the lending rules are thrown out the window. Bad credit no problem. Too high ratios, no problem! No job…. No problem. In fact. Just last year, a lender would approve everyone who signed their application for a maximum loan of $13,500.00 RRSP.
Unfortunately this program was abused. Many borrowers took the loan, the tax deduction, and the tax refund check, and then refused to repay the loan. When faced with those problems, the company gave up. They finished the program. Yes actually. This was too good to be true. So Broke Folks did it like that. it was too good. So, it’s not true anymore. The program was closed. This was a good program that lasted for at least TEN YEARS.
Statistics never lie. 90% of those who retire retire broke. However, they must continue to seek financial support during retirement. When you discover that your plan is identical to everyone else’s plan, you’re sure to be on your way to meeting those stats.
Good news remains with the 10% step forward to get your EXISTING MORTGAGE SMARTENED with SMERP, the Smart Mortgage Advance Payment Plan. The Plan, explained in the SMERP Action Guide, pays off the mortgage in half the time with savings of more than $250,000.00.