Most people scramble around at Retired Savings Plan (RSP) season to come up with their RSP contribution for the previous year. Historically, 50% of contributors wait until the new year to contribute for the previous year. Of those, 50% wait until February and of those, 50% wait until the last week. Human nature is what it is. Here’s a small change that can make a big difference. If you were to pre-pay your RSP, in other words pay the lump sum in January for the CURRENT year and not the previous year it can increase the amount you will have at age 65 by as much as 7.72%. How? Here is an example.
- Bob begins contributing to his RSP at age 30 and prepays for the current year, in January of each year.
- He does this for 35 years to age 65.
- Assume Bob dumps in $20,000 each year which is not even the current maximum.
- Assume he earns an estimated 7% annually on his contributions.
At age 65 he would have accumulated $2,978,269. If our man Bob waited to the end of the year to make his contribution like most do, he would have only accumulated $2,764,737 or $213,531 less. A difference of 7.72%. That’s a lot.
Our suggestion would be. Contribute for last year AND contribute this month for 2025 to start that pattern. Better yet, let us know how much and we can set it up so an automatic withdrawal/contribution is made monthly to take the sting out of a lump sum. The end result is the same, more money at retirement.
