A while back I opened up an Retirement Savings Plan (RSP) account with ING Direct. Every two weeks, I would schedule a $50 withdraw from my Royal Bank (RBC) account and have it deposited into my ING account. I do the same with my ING Direct savings account but with a lower amount. I also have an RSP account with Royal Bank but the ING account seems to be growing, I had planned on concentrating my monthly deposit on that account.
In order to focus mainly on the RSP with ING, I decided to put a stop to my preauthorized payment (PAP) with my RBC RSP. I was on the phone for about twenty five minutes with an RBC Investment Representative. I informed her that I called to put a stop to my PAP because I wanted to focus on another RSP account. She did as I asked without any hesitations. As she was doing it, she asked some questions and I answered them the best I could. Then she looked through my investments and saw that I had some pretty good return on investments (ROI) rates. One year I had 29%, the next 16%, followed by a large decline at -6% and then back up again to 19%. So on average, my account had a positive ROI but I didn’t see that because I didn’t look back far enough. By the end of the call, not only did I not stop the PAP but I ended up increasing my contribution.
During the call, the representative asked me some questions to ensure that my investment portfolio matched my goal. I was looking for a way to invest my money with minimum risk so it will grow in the long run. A higher risk factor would mean a higher ROI but I wasn’t willing to make too big of a risk yet. I don’t make enough money yet to be taking any risks. But by contributing towards my RSP while I’m working I benefit because it will help with my taxes. The amount that I contribute can be deducted from my annual income which will reduce the amount that I pay for my income tax. I don’t get taxed on the income earned in my RSP until I start to withdraw it. So while the investment is sitting in my RSP, it’s growing. By the time I start to take out the money I will probably have a lower tax bracket than what I’m currently in now.
RSPs are a good way to save for your retirement which will help you with a secure future. I try to save as much as I can and I recommend to my friends the same thing. Investing while you earn an income is a good way to reduce your annual tax bill and save for your future. It is a good way to build the foundation for funding your retirement. And if you ever need the money for something in the future, they are always available. Whether you plan on continuing your education, putting a down payment on a purchase of a new home or use it as an income during employment interruptions, the funds are there.
Currently, I have a Mutual Funds RSP that I start back in February 2001. The balanced funds portfolio is the one that suits my goal. It has a combination of equities, fixed income and money market investments. The representative I spoke with adjusted the asset mix based on the objective of the fund and her view of the economy and I receive the distribution in a form of interest.
Every month, since the start, I would deposit $25 (now $50) into my RSP. When I have some money left over, I would deposit that if I can. A good rule to follow is to try and increase your RSP by 1.5% every year. In my case, that would mean an extra $0.40/month or an extra $4.50/year which isn’t that big of a deal if you look at what you get in the end. If you do the math, $25/ month for 5 years and 6 months would bring me to $1650. I had some extra funds along the way, so I deposited an extra $375 bringing my total up to $2025. But at the moment, my RSP account is sitting at $2600 so it has earned a good 28%. This is how my money is working for me. People have told me not to work hard but work smart. By thinking about my future now, I won’t have to worry about it down the road.