London, ON: When you make your RRSP contribution this year, you’ll most likely focus on what to invest in: “Should I invest in the stock market, or play it safe and earn less than 3% in a GIC?”

While this is an important decision, there’s a more critical issue that will make a bigger impact on your retirement fund, says Talbot Stevens, author of the new book The Smart Debt Coach.

Behavioural factors most important

“Based on my experience with financial advisors and investors coast to coast, for about 90% of Canadians, RRSPs are really "Registered Retirement Save-taxes-and-spend-the-refunds Plans," Stevens says. While the government intended RRSPs to help Canadians tax-efficiently save for retirement, most investors are more focused on saving taxes now, and when they get an RRSP refund, they spend it.

Stevens suggests that in personal finance, behaviour trumps strategy nine times out of ten. RRSPs are a great strategy, when used properly. But the overlooked behavioural factor of what you do with your refund is most important, and unfortunately doesn’t get much discussion.

Five RRSP Refund Strategies

“There are actually five RRSP Refund Strategies,” Talbot explains. “Unfortunately, the first and most common strategy is to spend RRSP refunds. This undermines your savings and hurts your retirement. If your priority is retirement, you can increase your RRSP savings by 20 to 50% simply by using the second RRSP refund strategy and reinvesting the refunds.”

But even though reinvesting the refund is simple and a big improvement, investors could, and should, do even better. By using the third refund strategy, investors can “gross up” their RRSP contributions, and increase their savings by 25 to 100%. This approach converts the after-tax dollars you have to invest into the full, equivalent, before-tax amount in your RRSP.

Learn More, for Free

Stevens is on a mission to ensure that RRSP investors understand this overlooked opportunity to significantly increase their retirement savings.

Talbot Stevens' new book, The Smart Debt Coach, uses the catchy concept of dry pasta to help you understand a better way to a comfortable retirement. -- Ellen Roseman, Toronto Star personal finance and consumer columnist

To learn more about the RRSP refund strategies, and why you shouldn’t put dry pasta in your RRSP, Stevens has created a special web page where you can read this chapter of his book for free. Visit www.SmartDebtCoach.com/pasta.

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Talbot Stevens is a speaker and author of The Smart Debt Coach. His first books Financial Freedom Without Sacrifice and Dispelling the Myths of Borrowing to Invest have sold almost a quarter of a million copies. For more information, contact Talbot Stevens, by calling (519) 663-2252, or emailing talbot@TalbotStevens.com.

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