Benefits of Registered Retirement Saving Plans (RRSPs) and Scenarios:
Registered retirement saving plans (RRSPs) provide potential for growth on a tax-advantaged basis, which is an advantage over non-registered savings policies.
Contributing early and often to an RRSP can help grow your wealth considerably more than in a tax-exposed investment.
A contribution to an RRSP means you can:
- Reduce the amount of tax you pay each year – the total amount of your annual contribution, subject to certain limits can be deducted from your gross income, reducing the amount you pay in taxes
- Decrease your tax burden even further by contributing to a spousal RRSP
- Borrow funds, tax free, to: Purchase a home for the first time (home buyer’s plan) or Finance continuing education (lifelong learning plan)
- Defer paying taxes until retirement on the growth of these investments and potentially pay less in tax when funds are withdrawn.
Where do YOU fit today?
| Scenario: | I haven’t started contributing to RRSPs: | I’ve started to save, but don’t think I can save enough to support my retirement | I’ve maximized my RRSP contributions, but want to continue investing in a tax-advantaged vehicle |
| Consider: | Start now to help your contributions grow | Purchase an RRSP loan | Open a Tax-Free Savings Account (TFSA) |
Your retirement goal should be to save enough money to afford the lifestyle you want, when you want. This takes careful planning. Regardless of where you are in your retirement preparation, I have solutions to fit your needs.
Which option is best for me? It doesn’t matter how many years you’re away from retiring, review the following scenarios and see which solution best suits your individual needs. I can help you get there.
- Start saving: it pays to invest early;
It’s never too early to start an RRSP. In fact, you can start contributing to your RRSP as soon as you start earning income. Because of the power of compound interest, smaller contributions for a longer period of time accumulate more than larger contributions over a shorter period.
Consider Tim:
| Starts saving at age 25 | Starts saving at age 45 | Results Value of the RRSP at 65: |
| • Tim invests $5,000 each year• Continues to invest $5,000 a year for 40 years (until age 65)Tim contributes a total out-of-pocket amount of $200,000 over 40 years.
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• Tim invests $10,000 each year(Doubles his annual contributions, compared to the first example) •Continues to invest $10,000 a year for 20 years (until age 65)Tim contributes a total out-of-pocket amount of $200,000 over 20 years. |
Age 25 start: $820,238Age 45 start: $389,927
By starting to save at age 25, assuming an annual growth rate of 6%, by age 65, Tim accumulates 110% more!
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The above example is for illustrative purposes only. Situations will vary according to specific circumstances.
Contribute to your RRSPs today!
- Catch-up on saving: RRSP loans can build retirement funds faster
There’s no substitute for time, but there is a strategy to catch up if you have unused RRSP contribution room.
With an RRSP catch-up loan, you borrow the amount up to your unused contribution room and structure your loan repayment to suit your budget. You’ll receive a tax deduction for the RRSP contribution, which provides immediate tax savings. Plus, it can get you back on track to achieving your retirement goals and help you stick to your savings plan. Never underestimate the power of compounding.
If you fundamentally believe the market will go up, wouldn’t you rather contribute as much as possible today?
Consider Jane:
Jane is 40 years old and is looking at ways to increase her savings without having to increase the amount of money she is able to contribute monthly. If she takes an RRSP loan to enhance her savings, here’s what can happen.
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Takes out an RRSP Loan |
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| • Budgets $350 to contribute monthly to RRSP• Arranges a $25,000 catch-up loan at 4% • Uses tax refund of $10,000 to reduce outstanding loan • Makes loan repayments of $339 a month for 48 months |
Value at end of 48 months:RRSP grown to $31,907.Value of the RRSP at 65:When she goes to retire, the potential growth amount is $69,649 with a 5% rate of return.
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It is important to speak to your Financial Planner to be understand all the Benefits of a RRSP.