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You'll want to know the facts before you invest.
9 Tips to Help You Make the Most of Your Retirement Savings Plan
- Contribute Early. The earlier you start an RRSP, the longer your money will take advantage of tax sheltered growth.
- Maximize Your RRSP Contribution. RRSP contributions reduce taxes now and increase your retirement income later.
- Make Regular Contributions. This will ease the burden of coming up with a lump sum in February.
- Diversify Your Assets. Invest your RRSP money in a variety of vehicles in order to spread your investment risk.
- Make Up for Missed Contributions. Use the 7 year carryforward provision provided by Revenue Canada.
- Consider Borrowing to Make Your Contribution. This makes sense over the long term because the tax savings and investment growth may outweigh the interest cost.
- Contribute to Your Spouse's RRSP. Split your allowable contribution. This will enable you to save taxes during your retirement.
- Designate Your Spouse As Beneficiary. This will allow your RRSP to pass directly to your spouse and avoid estate taxes and deregistration of your RRSP.
- Review Your Plan. Review your plan every year to make sure you are building up the retirement income that you need.
RRSP Contributions
Does a Year Make a Difference?
A common remark from potential RRSP contributors is, "I can wait until next year, I have lots of time before I retire". The following example may change their opinion. Larry, Moe and Curly
Larry, Moe and Curly all knew the importance of investing in their RRSP. The three all earned the same investment return in their RRSP, 10% annually. The one important difference was timing. As you will see, Curly was no stooge.
At age 20 Larry decided to invest $2,000 a year into an RRSP. He continued to do this until age 26, then he stopped. His total RRSP contributions were $14,000. Moe, started at age 26, contributing $2,000 annually right up until age 65. |  |
Let's compare the RRSP's of Larry and Moe. By age 45, Larry and Moe had accumulated similar amounts, $116, 045 and $114,550 respectively. The difference, however, was that Moe had contributed $40,000, whereas Larry had only contributed $14,000 during the same 20 year period. In other words, Moe had to deposit $26,000 more just to catch up to Larry because he waited six years.
As for Curly, he got the last laugh. He began depositing $2,000 annually at age 19 and continued until age 26. Curly only deposited $2,000 more than Larry, but at age 65 will retire with over $160,000 more! Does a year make a difference?
You be the judge.
| | Larry | Moe | Curly |
|
Age | RSP Contribution | Total Value | RSP Contribution | Total Value | RSP Contribution | Total Value |
|
19 | | $0 | | $0 | $2,000 | $2,000 |
|
20 | $2,000 | $2,000 | | $0 | $2,000 | $4,200 |
|
21 | $2,000 | $4,200 | | $0 | $2,000 | $6,620 |
|
22 | $2,000 | $6,620 | | $0 | $2,000 | $9,282 |
|
23 | $2,000 | $9,282 | | $0 | $2,000 | $12,210 |
|
24 | $2,000 | $12,210 | | $0 | $2,000 | $15,431 |
|
25 | $2,000 | $15,431 | | $0 | $2,000 | $18,974 |
|
26 | $2,000 | $18,974 | $2,000 | $2,000 | $2,000 | $22,872 |
|
27 | | $20,872 | $2,000 | $4,200 | | $25,159 |
|
28 | | $22,959 | $2,000 | $6,620 | | $27,675 |
|
29 | | $25,255 | $2,000 | $9,282 | | $30,442 |
|
30 | | $27,780 | $2,000 | $12,210 | | $33,487 |
|
31 | | $30,558 | $2,000 | $15,431 | | $36,835 |
|
32 | | $33,614 | $2,000 | $18,974 | | $40,519 |
|
33 | | $36,976 | $2,000 | $22,872 | | $44,571 |
|
34 | | $40,673 | $2,000 | $27,159 | | $49,028 |
|
35 | | $44,741 | $2,000 | $31,875 | | $53,930 |
|
36 | | $49,215 | $2,000 | $37,062 | | $59,323 |
|
37 | | $54,136 | $2,000 | $42,769 | | $65,256 |
|
38 | | $59,550 | $2,000 | $49,045 | | $71,781 |
|
39 | | $65,505 | $2,000 | $55,950 | | $78,960 |
|
40 | | $72,055 | $2,000 | $63,545 | | $86,856 |
|
41 | | $79,261 | $2,000 | $71,899 | | $95,541 |
|
42 | | $87,187 | $2,000 | $81,089 | | $105,095 |
|
43 | | $95,905 | $2,000 | $91,198 | | $115,605 |
|
44 | | $105,496 | $2,000 | $102,318 | | $127,165 |
|
45 | | $116,045 | $2,000 | $114,550 | | $139,882 |
|
46 | | $127,650 | $2,000 | $128,005 | | $153,870 |
|
47 | | $140,415 | $2,000 | $142,805 | | $169,257 |
|
48 | | $154,456 | $2,000 | $159,086 | | $186,183 |
|
49 | | $169,902 | $2,000 | $176,995 | | $204,801 |
|
50 | | $186,892 | $2,000 | $196,694 | | $225,281 |
|
51 | | $205,581 | $2,000 | $218,364 | | $247,809 |
|
52 | | $226,140 | $2,000 | $242,200 | | $272,590 |
|
53 | | $248,754 | $2,000 | $268,420 | | $299,849 |
|
54 | | $273,629 | $2,000 | $297,262 | | $329,834 |
|
55 | | $300,992 | $2,000 | $328,988 | | $362,817 |
|
56 | | $331,091 | $2,000 | $363,887 | | $399,099 |
|
57 | | $364,200 | $2,000 | $402,276 | | $439,009 |
|
58 | | $400,620 | $2,000 | $444,503 | | $482,910 |
|
59 | | $440,682 | $2,000 | $490,953 | | $531,201 |
|
60 | | $484,750 | $2,000 | $542,049 | | $584,321 |
|
61 | | $533,225 | $2,000 | $598,254 | | $642,753 |
|
62 | | $586,548 | $2,000 | $660,079 | | $707,028 |
|
63 | | $645,203 | $2,000 | $728,087 | | $777,731 |
|
64 | | $709,723 | $2,000 | $802,896 | | $855,504 |
|
65 | | $780,695 | $2,000 | $885,185 | | $941,054 |
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