Getting it right with RRSPs


In order for you to make the most of your savings, we're going to help you squash some myths that keep coming up when we talk about Registered Retirement Savings Plans (RRSPs).

1. RRSPs are for people close to retirement

No - on the contrary, the earlier you start the less you'll need to contribute overall. Thanks to the compounded return, which means you get a return on your return.

2. RRSP is only for use during retirement

What about buying a house and financing your studies? Remember, an RRSP can be used, in accordance with the terms and conditions established by the Canadian government, to purchase your first property through the Home Buyer's Plan (HBP) or finance your education with the Lifelong Learning Plan (LLP).

3. An RRSP is an investment

An RRSP is indeed an investment vehicle but it makes you benefit from tax deductions. You can grow your savings that you've already contributed by choosing different types of investments, like guaranteed investment certificates, mutual funds or securities, based on your goals and risk tolerance.

4. If you have an RRSP, you'll lose your old-age pension once you're retired

Yes, but you must earn a minimum of $122,843 annually to lose your entire old-age pension. You begin to lose a portion of your Old Age Security (OAS) if your net personal income is higher than $75,9101. But don't forget that disbursement and income-splitting strategies can be used to avoid OAS claw back.

5. Having an RRSP is pointless if I have to pay tax on it once I'm retired

Keep in mind that for the years that you contribute to your RRSP, your money grows tax –free. Contributing to an RRSP lets you put off paying taxes on the amount saved before retirement. Although you’ll have to pay tax on your withdrawals, your tax rate at your retirement will probably be lower than it was while you were working.

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1. Amounts from the Government of Canada website which represent the annual net world income for 2018.