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RRSP : Contribute Earlier for Bigger Benefits

Lussier Dale Parizeau | February 15, 2021
Whether you're just starting out in the workforce or well into your career, you're certainly aware that you need to save the money you earn if you want to enjoy it in retirement. Although at age 25, retirement seems a long way off and acronyms like RRSPs may give you hives, but it's better to be well informed and advised about your options.

Towards a Golden Retirement

Take some time to think about your life as a retiree. Are you planning to sell the house and move to the country? Are you planning the trip you’ve always dreamed of? Will you finally have the time to indulge in the hobbies you’ve been putting aside for so long?

Even if you are planning to enjoy a quiet retirement with no big plans, will you have enough money to maintain your current lifestyle?

The Registered Retirement Savings Plan, the most commonly used retirement savings tool in the country, becomes a good ally in investing your money tax-free for your long-term projects.

Time is on your Side

With an RRSP, your savings grow tax-free, which maximizes their return. In addition, the tax rate at retirement is generally lower than during your working life. This means that the longer your money remains tax-sheltered, the more attractive the capital once you retire. That’s why it’s important to start contributing as soon as possible, for example at age 25.

If you contribute $1,500 per year from age 25 to 55, your total investment would be $45,000, and its value at age 55 would be approximately $104,641*. On the other hand, if you contribute $3,000 per year from age 40 to 55, your total investment would be the same, but its value at age 55 would be approximately $67,972*.

*5% annual return is used as an example.

Contribute Throughout the Year

A simple and secure way to contribute to your RRSP is to set aside a fixed amount by pre-authorized debit. All you have to do is choose the amount and frequency of the payment to contribute to your RRSP. For example, to invest $1,500 per year, you will have to contribute $28 per week to your RRSP account.

Obviously, this amount must be appropriate to your financial situation and your reality. To help you see things more clearly, ask your financial planner for help. He or she will be able to work with you to establish a realistic and optimal retirement plan.

A Few Facts to Help you

Assessment deadline for the 2020 tax year: March 1, 2021

Maximum amount of $27,230 in 2020 and $27,830 in 2021

Maximum contribution percentage: 18% of your income from the previous year

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Lussier Dale Parizeau

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