Gordon Powers

Over the next few weeks, just about everybody you meet will be trying to sell you an RRSP. Oddly enough, unlike the latest Groupon offering, they're actually touting something that you really do need — not that most people are actually listening.

Something like six million Canadians put money into an RRSP plan last time out, according to the latest Stats Canada data. Which means roughly two thirds of Canadians who were eligible to contribute didn't put in a penny. And, for many of these individuals, that's likely to be their first money mistake in 2011.

It's not hard to find reasons for not investing in an RRSP: no cash, paying for school, trying to buy a home, raising a family, or just simple procrastination.

But there's no getting around it: As you grow older, it becomes that much harder to make up for those lost years when you didn't invest. That double-whammy - less time to save, more time for your money to last — is what has so many potential retirees worrying about eventually outliving their money.

Let's look at it another way. Say your sister started contributing $1,000 a year to her RRSP when she turned 20. Then, at 34, she simply quit. You, however, get going at 30 with $1,000 a year and contribute until you turn 64. Even though you've put in three times as much money ($35,000, compared with her $15,000), her fund will be larger — all because of compound interest.

In a perfect world, most people would invest as much as they could in an RRSP. Most of us simply don't have the cash, however. And making the maximum contribution allowed does take a fair amount of money.

Currently, you can contribute up to 18 per cent of your previous year's earned income to a maximum of $22,000 — unless you're in a pension plan in which case you'll only be able to make up the difference, depending on the value of your plan. Your T4 slip records this pension adjustment figure.

The actual RRSP contribution room you have available is included on the Notice of Assessment from your 2009 tax return.

Still, you've got to start somewhere. If you don't have the money to make a maximum contribution, consider borrowing. If you pay off the loan within the year, the growth on your money and your tax refund should offset much of the interest cost.

For example, let's assume that you want to make a $5,000 RRSP contribution this year. Assuming a top marginal rate of 46 per cent and that you'll be otherwise receiving a refund, this will generate a tax savings of about $2,300 for you.