If you’re like many Canadians, there are two things you always leave to the last minute: packing for a trip and making your annual RRSP contribution.  And while a last-minute rush may not have a negative impact on your trip, it can definitely have a very negative impact on the size of your retirement nest egg.

But there is an easy fix – all you need to do is PAC early and often.  In this case, PAC stands for a Pre-Authorized Contribution program, and it’s a terrific strategy that makes investing so easy you’ll often forget you’re investing at all.

Unfortunately, most Canadians don’t PAC – and it costs them in a number of important ways.  According to a recent survey*, about 69 per cent of RRSP investors wait until January or February to make their contribution.  This suggests that many Canadians make RRSP contributions for the tax savings they offer, rather than as part of a comprehensive personal financial plan aimed at achieving their retirement dreams.  In fact, around 61 per cent of survey respondents indicated they had not even determined how much money they would need to save for their retirement! 

Here’s how PAC-ing would help these people … and you: 

• A PAC allows you to avoid the annual RRSP deadline cash crunch each year.  It can be difficult to come up with a large lump sum of money at any time of year, and especially right after the holidays.  But, when you are unable to make your maximum RRSP contribution, you shortchange yourself from obtaining immediate tax benefits and enhanced long-term growth in the best tax-sheltered, savings builder for most Canadians.
• A PAC can significantly improve your financial future.  By automatically investing, say $250 regularly each month at a compound annual return of 8%, you’ll have $354,230 in your retirement nest egg 30 years from now.**  But, if you wait until the end of each year to invest a $3,000 lump sum, you’ll have only $339,850.  By investing monthly, you’ve added $14,380 at retirement without an extra penny of cost.  That’s just one example of the considerable value of paying yourself first with PAC.
• Tie your PAC strategy to a comprehensive financial plan.  You wouldn’t take a trip without knowing your destination.  The same is true of your destinations in life – knowing what they are keeps you on track to getting there.  Decide what you want to do in retirement and it’ll be much easier to achieve your goal.  And by correctly PAC-ing for the trip, you’ll enjoy the double benefit of working towards your goal and saving on taxes.
• Keep your PAC on pace with your life.  As time passes, your income changes and your life changes – so your PAC should change too.  You should aim to reset your PAC annually by a lump sum dollar amount or by a designated percentage.  That way, you’ll keep your RRSP contributions and other investing in line with inflation and personal wage increases.

 By PAC-ing now and revising as you go, you’ll ensure your investment strategy keeps pace with your objectives, your goals and your life.  A professional financial advisor can help you PAC correctly and keep you on the road to personal financial independence.

*Survey results based on an annual Investors Group poll, conducted via a Decima TeleVox national telephone survey with a representative sample of 2,035 adult Canadians between September 11-21, 2004.

**The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future returns on investment.