The Motley Fool

3 Super RRSP Tips

Piggy bank next to a financial report
Image source: Getty Images.

In late 2019, I’d discussed some of my favourite stocks for RRSP investors. We’ll get into some stocks that are interesting for a retirement portfolio later. In this article, I want to go over three tips that can help boost your RRSP for the long haul.

Maximize your RRSP contribution

Last spring, I’d discussed why it was more important than ever for Canadians to maximize their RRSP room. One of the reasons this is so important is the decline of defined-benefit (DB) pension plans. These plans may be virtually extinct in the private sector by the end of the 2020s. This means that Canadians need to take retirement planning into their own hands.

The COVID-19 pandemic is going to make retirement planning even more important. Many sectors have suffered irreparable damage due to the pandemic.

Ideally, Canadians should be using their full allowable contribution limit each year. If you do not have enough cash to contribute to the maximum, you can contribute in kind or consider an RRSP loan. A contribution in kind allows you to add to your RRSP through non-registered investments such as mutual funds.

Stick to a strategy

An RRSP investment strategy should be constructed to fit an investor’s timeline and risk tolerance. Younger investors may want to target growth stocks like Shopify. This Ottawa-based technology company has attracted enthusiasm, powered by the growth of its e-commerce platform. It has eyes on bigger international growth in the 2020s. Shares of Shopify have climbed 138% in 2020 as of close on September 10. This tech stock has made fortunes over the past five years. Younger investors can stash these high-growth stock without worrying about near-term volatility.

Older RRSP investors, however, may be looking for more stability in their portfolio. This is where dividend stocks like Fortis come in. The St. John’s-based utility holding company is an elite dividend stock on the TSX. It has delivered dividend growth for 47 consecutive years. Fortis stock has increased 1.2% so far this year.

The company last announced a quarterly dividend of $0.4775 per share. This represents a 3.6% yield.

Avoid dipping into your RRSP

This is a very important tip to remember for investors of all ages. Canadians receive a tax break for contributing to their RRSP. However, any RRSP withdrawals are taxed at a marginal rate. This can range anywhere from 10% to 30%. Unlike the TFSA, the contribution room in an RRSP cannot be restored. Because of this, any withdrawal will erode the potential of your RRSP portfolio. This can be especially damaging to younger investors who choose to dip into their retirement funds early.

In previous articles, I’ve discussed why using the TFSA as a savings account is not the best use of its potential. However, this is still a far better option than dipping into an RRSP. Contributions in an RRSP should be considered untouchable. Investors who require cash for a home purchase do have the ability to use the RRSP Home Buyers Loan.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan owns shares of FORTIS INC. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify. The Motley Fool recommends FORTIS INC.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.