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rrsp season

Putting away money in registered retirement savings plans is a force of habit at this time of year. But the inclination – as well as the goals and strategies – can vary for people at different stages of life, from the "Who me, retire?" 20s to the "Do I have enough?" 60s.

"It's never too early to start investing in RRSPs," says Howard Kabot, a certified financial planner and vice-president of financial planning at RBC Wealth Management Services in Toronto. "It's also never too late."

How and how much you invest in the plans at each age is a matter of financial planning, risk tolerance and, of course, competition from other spending and investments. RRSP contributions have dropped since the late 1990s, as the baby boom generation retires and younger people develop new savings habits.

But Susan St. Amand, a certified financial planner and president of Sirius Financial Services in Ottawa, says that investing in RRSPs "is probably more important now than it's ever been," given that employer pension plans have declined, expectations of retirement have risen, longevity as well as health-care costs have increased and returns on investments have shrunk.

Goals and strategies for RRSPs at each stage of life depend on your comfort level, priorities, values and other factors.

The 20s and 30s

In the early years, retirement is "just not top of mind," Mr. Kabot says, given low salaries and priorities that include spending on or saving for big-ticket items such as cars and down payments on homes. But "if you can possibly find some cash flow," he says, it should go into RRSPs.

"The math will show you that the earlier you start the better," he explains, given the "magic of compounding."

This is the best time in life to take risks, given the broad time horizon before retirement.

Ms. St. Amand says that putting 75 per cent to 80 per cent of RRSPs into equities is fine, although "it depends on your comfort level," as well as what other investments you have. "You can never look at RRSPs in isolation."

Young people today are especially living at a time of economic uncertainty and change, she says, compared with when their parents and grandparents were at their age. "It's hard to think when you're 20 what life's going to be like when you retire."

A recent Royal Bank of Canada poll found that 43 per cent of Canadians aged 18 to 34 hold RRSPs, an increase from a decade-low of 39 per cent last year.

Mr. Kabot says that young people such as university students with summer jobs should file tax returns to generate contribution room, even if it's to be filled later. By their 30s, they should be putting away 10 per cent of their income for retirement.

The 40s

For many of us the 40s are the catch-up years, with a boost in income, better discipline and organization, retirement already in sight and those ads during RRSP season suddenly ringing in our ears. "You're starting to understand the relevance now," Mr. Kabot says.

This is often the time when many sit down with a financial adviser to crunch the numbers and see how much they need – and are on track to have – in retirement. Don't forget there's a lot of other financial priorities, with a young family, a mortgage to pay off and saving for education.

Investments in RRSPs should remain aggressive, Mr. Kabot says. "You have a 25-year time horizon until you need to draw the funds down. You can take a little more risk."

Ms. St. Amand cautions that it can have an "emotional, detrimental effect" for those with RRSPs invested in equities to "now be seeing negatives." Losses in registered plans cannot be written off against any gains, she notes, and if you withdraw the funds and close the plan entirely you cannot recover the contribution room.

"If you do that you're just locking in whatever losses you have," she explains, adding that in such cases, take your time and adjust the investment – but not the financial instrument.

The 50s

At 50, "you're starting to think about what retirement looks like," Mr. Kabot says, focusing on soft issues such as when and how you'll retire and hard issues, such as exactly how much money you'll have when you do. "Before it was a guess, now you're a bit more comfortable with that number."

RRSPs remain an important part of the equation, albeit with more conservative holdings, given the narrowing window for recovery should they take a hit. With a healthy income, perhaps an empty nest and fewer other expenses, you're able to max out your contributions and maybe even take advantage of unused room from the past. That will shelter more of your higher income, although of course you're largely losing out on compounding.

"Fifty is a wakeup call for everybody," Ms. Amand adds. "You should be socking away as much as you can."

She says some people at this age suddenly worry that they need to make their money grow faster, but they have "less time to recover any losses." She asks clients in their 50s: "How do you sleep at night?" and usually finds that those with their RRSPs in less risky investments feel better.

One issue later in life is to be careful that you don't have too much invested in RRSPs, Mr. Kabot says, especially because the funds will be fully taxable when you withdraw them after retirement, which can be significant even in minimum amounts. If that's the case, find other ways to invest extra cash flow now, for example in non-registered plans or maybe in home improvements.

The 60s

You've spent 40 years accumulating retirement assets; "decumulation" is just ahead. This is the time to be ultra conservative in RRSP investments, with a large majority of your portfolio in fixed-income holdings.

The 60s are a good time to look over all of your investments in a global way, Ms. St. Amand says. Consider how much money you'll need immediately following retirement and beyond; organize your portfolio to be drawn down accordingly; at least the minimum amount every year has to come out.

"Make sure you have some liquidity in your plans," she explains. "Is your fixed income liquid enough that you can provide an income from it?"

You can contribute to RRSPs up to and including the year you turn 71, assuming you had earned income in the previous year or leftover contribution room from a previous year, Mr. Kabot says. He points out that you have until Dec. 31 of the year you turn 71 to make your last contribution, because the RRSP must be converted to a registered retirement income fund by that date, and contributions cannot be made to a RRIF.

This is the time to give some additional thought to the beneficiary or beneficiaries you name on your RRSPs (and don't forget to restate them when the RRSPs become RRIFs, which entail new contracts). Upon your death, the funds in an RRSP or RRIF can roll over to a spouse's registered plan tax-free. If there is no spouse or you have named different beneficiaries, the RRSPs or RRIFs will be cashed and your beneficiaries will receive their full value, while your estate pays the tax on the amount, as if it was income in your final year.

Special to The Globe and Mail

For tips, stories, videos and live chats ahead of this year's RRSP contribution deadline, check the Globe Investor 2012 RRSP season section for daily updates.