Weatherproofing your RRSP 

What is an RRSP?

Before we look at the RRSP situation right now and what your next move should be, here’s a quick summary. First rolled out back in 1957, the Registered Retirement Savings Plan is a Federal-endorsed savings and investment plan available to Canadians 19 and over across Canada. Money is put into an RRSP pre-tax and there it stays, growing tax-free until funds are withdrawn.

At this point, it’s taxed at a marginal rate. The thinking behind it is that you’re contributing while you’re working and in a higher tax bracket, but then finally withdrawing when entering retirement and in a lower tax bracket. However, the benefits are not just seen in the post-work stage of life. More and more people who contribute to an RRSP are then withdrawing funds as first-time home buyers, seeing it as a way of borrowing their own savings and getting on the property ownership ladder.  The RRSP can also be used to help fund post-secondary school education such as university or trade school. Repaid over time, these two options allow you to borrow funds from yourself rather than taking out higher interest loans. 

While there’s no guarantee of massive amounts of interest accruing, there is comfort in knowing your money is completely protected without having to pay tax on it. And that knowledge is why so many Canadians utilize this investment vehicle, understanding that this “savings pot” is the foundation of a more comfortable retirement.  

The Financial Impact of Covid-19

So far, so simple. Then came the pandemic. It’s more than 10 months since COVID-19 sent us into a global tailspin, and we’re still trying to live with and make sense of the long-term implications, whether concerning our health, employment, travel, or personal finances. Even if you and your family have escaped Coronavirus, you’ll have been impacted in some way by very limited travel, possible furlough from work, or having to think about how and what you spend your money on. 

If you’re one of the 69% of Canadians that already has a registered retirement savings plan (RRSP), you may well be feeling uneasy about what your financial future looks like right now and considering whether it’s wise to dip into that RRSP savings pot ahead of schedule. There are two sides to the story of why this may not be wise right now; a) with an economic downturn existing savings are safe for sure, but there is a less regular investment from members, which in turn affects what funds can be pulled out prematurely, and b) there are other more practical ways in which to manage finances.

More on helpful savings tips shortly, but for a moment let’s take a brief look at what’s currently going on in the pensions and retirement world because of Covid-19.

The Crisis in Numbers

To get an immediate snapshot of economic consequences, here are some stats. According to a survey conducted by Insight West where all participants were living in B.C.:

• 69% of British Columbia has seen either their RRSP or savings negatively impacted
• 40% of business owners have reported a negative downturn
• 41% of respondents admitted the pandemic affected their ability to pay rent
• 29% confirmed they were having issues paying their mortgage
• 6% said they might face bankruptcy as a result of the pandemic

On top of that, it’s estimated that approximately three million jobs have been lost across the whole of Canada since the start of the crisis, and the unemployment rate in B.C. is hovering around 11.5%.

Two of the employment sectors taking the biggest hit are hospitality and the arts. With countless restaurants, hotels, theaters, and concert venues across BC being closed for months at a time, many of those initially furloughed are now facing redundancy, which will only add to this worrying data. 

Before we move onto our more positive approach, there’s one more statistical nugget to digest. A report from the Mercer CFA Institute Global Pension Index revealed that this crisis has shed new and unwelcome light on the gender disparity in pension pay-outs. Even in what should be more enlightened times, many women are still retiring on less money than their male counterparts. And with many more females represented in hospitality roles and those jobs disappearing, that’s a double whammy of a hit.

Bearing in mind all of these sudden and dramatic changes, is it any wonder that more people than ever are looking at ways to “borrow from Peter to pay Paul” or skim a little from the RRSP savings until the Coronavirus storm finally passes?

Seven Tips for Saving More and Spending Less

At Sunshine Coast, we’re constantly listening to our members and talking to each other. Here are seven of the smartest and quickest ways to cut back, save more, and spend less. 

1. Face reality right now: Don’t shove your monthly statement in a drawer unopened or ignore your e-statement and credit card bill. Get it all on the table, audit everything, and understand exactly what’s going in and out. 

1. Be okay with accepting assistance: Open yourself up to the government and local grants, benefits, and funds that you may be entitled to. The Canadian Emergency Response Benefit (CERB) may have closed but always check if retroactive applications are still being accepted and processed by the Canada Revenue Agency (CRA). After that, the Recovery Program kicks in for which you may be eligible. 
2. Make sure you’re not being overcharged for anything: Are you on the best utility tariff? Does it make sense to refinance your car loan? 
3. Cut back on the extras: This may hurt in the short-term, but on that audit, you did, how much was being swallowed up by streaming services, digital products, or online services you never use? How about the gym membership or wine club? If those things give you pleasure and are regularly being used, think twice, but if this is an outlay going nowhere, start the ‘cancel subscription’ process today. 
4. Don’t need it, sell it: Cars, electronics, clothes, nearly new toys, collector’s comics. There’s a market for just about anything and online trading sites are a whole lot safer right now than hawking your stuff at a flea market. 
5. Hide your credit cards: But first, ensure you have a regular, monthly plan to pay these off and aren’t being charged interest on top of that. 
6. Cash in matured investment bonds and savings: What else might you have in terms of savings aside from an RRSP, check if the time is right to access that money.

Setting Up a New RRSP Now

While the received wisdom of many may be all about the cutbacks and possible withdrawal of some funds from an existing RRSP, there are some solid reasons why this is a good time to start one or add to it.

First off, there’s no vaccine or antibodies needed when it comes to looking after your money. Your contributions are safe and secure, regardless of what’s going on in the world, financial or otherwise. Put in $1000 this year, next year, and the one after that, and it will never shrink unless you’re taking money out.

On the other hand, in times of financial constraint, there is no pressure to invest. You can wait until the tide turns. If you’re currently in employment and want to get your RRSP going, never forget that you deduct contributions against your income.

Put in simple terms, if your tax rate is 40% and you decide to put $100 in an RRSP, you’ll have saved $40 in taxes up to your limit in contributions. Other, non-RRSP investments are subject to capital gains, dividend, or income tax – well worth considering if you’re doing a comparative analysis.

As stated near the start of this piece, the payment of taxes on an RRSP is deferred until after retirement, when your tax rate would have dropped, so the returns are maximized. That rule is applicable whether you're taking out a single person, spousal or business-linked RRSP.

When you start an RRSP with Sunshine Coast Credit Union (SCCU), you can keep things simple with an RRSP savings account. You can also look at two further areas – Term Deposits or Mutual Funds and Portfolios. Your decision shapes the outcome of where money sits until you’re ready to enjoy retirement and reap the benefits.

Term Deposits Advantages

• On your side: Guaranteed interest rates
• Flexible: Variety of terms and redemption options
• Transparent: Competitive rates
• Community-focused: Your money supports the people and businesses on the Sunshine Coast - essential to kickstart the B.C. economy right now
• Secure: 100% deposit guarantee. SCCU depositors are protected by the Credit Union Deposit Insurance Corporation (CUDIC) of British Columbia.
• Mutual Funds and Portfolios Benefits
• Expert: Professional money management
• Tailor-made: Bespoke portfolios that bend and stretch to meet specific goals, tolerate risk, and survive timescales
• Variety: Access to many types of investments from equities to fixed income
• Ethical: Socially responsible investment options.

Find out how quickly your RRSP could potentially grow with our retirement calculator.

Surviving and thriving through this (yes, we’re going to say it just this once) “new normal” is challenging on a daily basis. Who would have thought that wearing masks, sanitizing hands, and keeping a social distance would be the least of our issues?

Sunshine Coast Credit Union though, was founded and then flourished from a time of hardship. Our starting point was establishing local roots helping our neighbors in the aftermath of the Second World War and depression, which were challenging times. With that history of local helpfulness, we’re confident that we can help our members move past this latest crisis.

With only half of Canadians estimated to be debt-free by the time they retire, we want every one of our RRSP investors to look forward to that time of their life without worrying about money or whether their pension will cover the bills. 

We’re weatherproofed against disaster, why not come under the SCCU umbrella today and start to look forward once more, or arrange to connect with one of our advisors?

RRSP Deadline for 2020 Tax Year is March 1, 2021. 

Check out our RRSP Loan page should you need help contributing this year. 

Disclaimer and Other Legal Information 

These articles are made available to you as tools for independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy. All examples are hypothetical and are for illustrative purposes only. Please visit your branch to seek personalized advice from qualified professionals for all personal finance issues.