Retirement Planning

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Most of us understand the benefits of sensible retirement planning. Still, it doesn’t feel relatively straightforward when it comes to creating your retirement strategy and putting it into effect. The reality is that, while there are lots of variables to consider, it isn’t as challenging to create an effective plan for retirement as you may think.

Firstly, let’s consider the merits of a retirement plan. Firstly, the plan will aid you in setting clear goals for your retirement, such as the age that you want to finish work and what you want your retirement to look like in terms of lifestyle. Secondly, it will help you establish how much you need to save to have a retirement that meets your objectives. Thirdly, a plan will allow you to choose your investment options wisely.

How you know how much you need to save is a common question. This depends on three factors:

  • Your age. It makes sense that starting to save for retirement when you are younger means that you need to save less money than starting later in life.

  • Benefits available to you. There is a range of federal government benefits that you might be eligible for, such as the Canada Pension Plan or Old Age Security.

  • Your plans for your retirement will inevitably affect how much you need to save to fund it.

If you haven’t started saving for your retirement yet or have less in your retirement savings plan than you would like, take a look at our top tips to accelerate your savings.

  • Make the most of RRSPs and TFSAs to minimize your tax bill and make your money grow faster.

  • Take advantage of any pensions or savings plans that your workplace offers, as your employer’s contributions can add extra value to your fund.

  • Look at your spending habits to identify opportunities to cut back outgoings and save more.

  • Think about putting spare money into your retirement fund.

Taking steps to create an effective retirement plan is a decision that will pay off as you approach later life, allowing you to have the savings for the retirement that you deserve.

Talk to us; we can help.

5 reasons for an RRSP-2022

There are some great reasons to open a Registered Retirement Savings Plan (RRSP) to save for your retirement. Here are the top 5 reasons to open an RRSP:

Contributions are tax deductible

You can claim your RRSP contribution as a deduction on your tax return and even carry forward unused space to a future year where you may have a higher income. All of this combined means that your retirement savings pot can grow even faster.

Savings grow tax free

You won’t pay any tax on investment earnings as long as they stay in your RRSP. This tax-free compounding allows your savings to grow faster.

Convert RRSP to receive regular payments

You are able to convert the money saved in your RRSP into a RRIF or annuity when your time comes to retire. You’ll pay tax on the regular payments you receive each year- but if you’re in a lower tax bracket in retirement, you’ll pay less tax.

Spousal RRSP can reduce your combined tax

Reduce your combined tax burden. If you are married and you earn more money that your spouse, a spousal RRSP may benefit you as you can add to their tax-free savings to build a joint retirement income which is likely to mean that you pay less tax in the long run.

Borrow from RRSP to buy your first home or pay for your education

You can borrow money from your RRSP under certain conditions

If you want to buy your first home (Home Buyer’s Plan) or pay for your education (Lifelong Learning Plan), you can take out up to $25,000 (HBP) or $20,000 (LLP) respectively from your RRSP to fund it without paying tax on the withdrawals (providing that the money is paid back within the specified time).

What is an RRSP?

What is an RRSP?

Are you looking to save for your retirement and cut down on your tax bill? If this sounds good to you, then a Registered Retirement Savings Plan (RRSP) may be the perfect fit for you!

What is an RRSP?

The primary purpose of an RRSP is to help you save for your retirement. It’s a registered investment vehicle, where you can use your contributions to decrease your tax bill.

How does an RRSP work?

There is no minimum age to open an RRSP. You can open one as soon as you have earned income and are filing a tax return.

RRSP Basics

The most important things you need to know about an RRSP are:

  • Each year, your contribution room is 18% of your previous year’s earned income up to the maximum contribution limit for the current tax year. You automatically carry over unused contribution room from previous years.

  • Deposits made by you or your employer into a pension plan can impact your RRSP contribution room.

  • The Canada Revenue Agency tracks your contributions. As a result, you can deduct the amount you contribute to your RRSP from your taxable income.

  • Your contributions grow tax-free as you only pay taxes when you withdraw your money.

Advantages

The most significant advantage of an RRSP is that it provides a tax-free way to save for your future, as well as helping you save on your tax bill today because your RRSP contributions are tax-deductible.

When you are ready to withdraw money from your RRSP (which you must do starting at age 71), your marginal tax rate should be lower than it was during your working years, so you will likely not have to pay a large amount of taxes on your withdrawals.

With an RRSP, there are also two other ways you can withdraw your money tax-free:

  1. The Home Buyers’ Plan (HBP) is a program that enables you to withdraw from your RRSP to buy your first home. You must pay back the funds 15-year period.

  2. The Lifelong Learning Plan (LLP) is a program that enables you to withdraw money from your RRSP to pay for qualifying education or training. You must pay back the funds over a 10-year period.

Limitations

These are the main RRSP limitations:

  1. You can’t hold some types of investments in your RRSP, including precious metals, commodity futures contracts, and shares in private holding companies.

  2. You will have to pay both withholding tax and income tax if you make an early withdrawal from your RRSP (excluding a withdrawal for the HPB or LLP).

Want to learn more about RRSPs?

We can help you get started saving for the future with an RRSP. Contact us today!