Indexing: a good way to build your RRSP



    MONTREAL, Jan. 30 /CNW Telbec/ - Among the various means available to
investors to build their RRSPs and meet their objectives, Laurentian Bank
recommends a very simple proven strategy: the annual indexing of
contributions. This is part of the 3D formula promoted by the Bank, which
consists of three basic components - dollars, duration, diversification - that
are essential for good investment management with a view to retirement.
    Inflation is a factor that all investors should take into account. This
means that all good retirement planning should provide for increasing
contributions based on the rising cost of living. This approach will allow
investors to start up a savings program with small contributions that can be
increased gradually in step with rising inflation and increasing income. This
method encourages young people to start contributing earlier, as starting
amounts are more modest.
    By factoring indexing in their contributions, investors put in a lower
amount than the average contributions to be paid throughout the duration of
their RRSP investments. By increasing the invested amounts by 2 to 3% per
year, as per the actual inflation rate, contributions increase proportionately
to inflation and protect the investor against a "future bill," i.e. the cost
of living accumulated over decades.
    The table below shows the contribution to be paid based on age while
regularly contributing to an RRSP, to reach $500,000 by age 65. The
calculation takes into account an average annual return rate of 6%.

    
        Age of first         Monthly contribution    Monthly contribution
    contribution (in years)                        with 3% annual indexation
    -------------------------------------------------------------------------
           25                   $   251.06              $   166.85
    -------------------------------------------------------------------------
           35                   $   497.75              $   357.13
    -------------------------------------------------------------------------
           45                   $ 1,082.15              $   853.67
    -------------------------------------------------------------------------
           55                   $ 3,051.02              $ 2,700.45
    -------------------------------------------------------------------------
    

    For example, it will cost an investor starting to contribute at age 25
$251.06 per month for 40 years. However, in the same case of starting at
25 years of age, if he indexes his contribution annually by 3%, it will cost
him $166.85/month the first year, $171.85/month the second year, etc. Indexing
their contribution enables investors to save over the early years of their
RRSP investment without compromising the ability to increase their
contributions in subsequent years based on a larger income.

    Indexing is a good idea at any age

    Even though the above example is meant to encourage young investors to
factor indexing in their initial retirement plan, it is never too late to
start indexing contributions. If the investor is already contributing to an
RRSP, say up to $200 per month over the past few years, he or she should start
thinking about indexing the 2008 contribution at the current rate of
inflation. If he or she increases the monthly $200 by 3%, for example, it will
only mean an extra $6 per month, or $206. In short, investors should get into
the habit of indexing their contribution every year or every time their income
changes.

    About Laurentian Bank

    Laurentian Bank of Canada is a banking institution operating across
Canada and offering diversified financial services to its clients.
Distinguishing itself through excellence in service, as well as through its
simplicity and proximity, the Bank serves individual consumers and small and
medium-sized businesses. The Bank also offers its products to a wide network
of independent financial intermediaries through B2B Trust, as well as
full-service brokerage solutions through Laurentian Bank Securities.

    Laurentian Bank is well established in the Province of Quebec, operating
the third-largest retail branch network. Elsewhere throughout Canada, it
operates in specific market segments where it holds an enviable position.
Laurentian Bank of Canada has close to $18 billion in balance sheet assets and
more than $15 billion in assets under administration. Founded in 1846, the
Bank employs close to 3,300 people.




For further information:

For further information: Nora Bouikni, Public Relations Advisor, Office:
(514) 284-4500, extension 6379, nora.bouikni@laurentianbank.ca

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Laurentian Bank of Canada

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