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RRSP Basics & Beyond

RRSP Basics & Beyond


Stone in zen sand garden that says RRSP

Most Canadians know a little bit about RRSPs (Registered Retirement Savings Plan), but it still seems to be a murky topic overall. So, let’s learn a little more about them and why they are important, no matter what your financial situation is currently. RRSPs have been around since the 1950s, with the simple aim of helping people save for retirement. Although most Canadians are eligible for Old Age Security (OAS) and Canada Pension Plan benefits (CPP), those provide a very small income, and it’s not easy to live off that amount alone.

How does it work?

When we set up an RRSP account, we aren’t limited to going to a bank. We have many options such as credit unions, finance or investment firms, mutual fund companies, insurance companies and brokers. An RRSP is not a savings account that sits still and earns an exact amount of interest each year, it’s a registered investment account; it’s subject to the same ups and downs of any investment. With an RRSP account, you can buy mutual funds, GICs (Guaranteed Investment Certificate) stocks, bonds, and even gold. While your money is ‘locked in’ to that RRSP, there are no taxes to pay on the interest or capital gains you earn. Your investments will slowly grow year after year. The sooner you start putting money into an RRSP, the more you’ll have available at retirement time.

How much can I contribute?

The most you can currently contribute to your RRSP is 18% of your income (or $26,500, whichever is smaller). If you haven’t used up the maximum contribution each year, you’re allowed to add more into your RRSP to get caught up. If you don’t know how much you can put towards your RRSP, you can refer to last year’s Notice of Assessment or call the CRA (Canada Revenue Agency). However, for a lot of Canadians, it’s not a matter of maxing out our RRSPs, it’s about simply getting started – even with just a little bit.

Why choose an RRSP?

RRSPs are great because they reduce how much income tax we pay.  When we put money into an RRSP account, it gets ‘deducted’ from our annual earnings, meaning we will likely get a tax refund or pay lower taxes. Then, while it’s in there doing its thing and growing, we also enjoy ‘tax free’ interest. However, when we retire and go to access the funds in our RRSP, we do have to pay tax on it. The good news? Usually when we retire, our income is much less so the taxes we pay won’t be as severe.

In the past several decades, we’ve seen fewer employers offering retirement benefit plans. Combine this with the fact that there aren’t many permanent, full-time jobs out thsere, and it becomes apparent that Canadians need to step up when it comes to saving for our retirement. We’re living longer, healthier lives, so let’s work to make sure we can enjoy it.

Can I withdraw my RRSP before I retire?

You can, but it’s rarely ever advised unless there are no other options for you. You’ll be taxed heavily, and there will be withdrawal penalties to pay your financial institution who set up the account, leaving you with much less than you bargained for. You’ll also have to start over with your retirement plan, with fewer years ahead of you watch it grow than when you first started.

The deadline to make RRSP contributions is coming up soon. Are you ready? Even if you commit to $50 or $80 each month, you’ll start to see that retirement money grow. As you earn more, you can contribute more. Talk to me, Darren Robinson to see how an RRSP fits into your overall financial plan. You have a lot of great options, so let’s find out what’s best for you and we’ll get started. Connect with me today at 705-315-0516 and let’s make an appointment to start planning for your retirement.

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