It’s never too early to start saving for retirement
Author: Sound Choices
January 19, 2018
The content in the below article is meant for Canadian investors only.
Investing regularly in smaller amounts can help you get started.
It’s difficult to predict how much you need to save and how much income you will need to cover your expenses in retirement, but the earlier you start planning the better. One of the first steps you can take is to know how much the government will provide in retirement income.
You’ve likely heard of Canada Pension Plan (CPP) and Old Age Security (OAS) benefits. But do you know how much they will be?
|Government plans (October 2017)|
|Average Canada Pension Plan1||$7,699.56|
|Maximum Old Age Security2||$7,039.92|
|= Total annual income from government sources||$14,739.48|
Although it’s likely that these numbers will increase as you approach retirement, CPP and OAS benefits will be modest and may be insufficient for you to meet your retirement goals.
If you want to supplement government benefits, think about using a Registered Retirement Savings Plans (RRSP).
Two important benefits of an RRSP
1. Investments in your RRSP will grow tax-deferred, which means you don’t pay tax immediately on any capital gains or income you earn within the account. This leaves more money in your portfolio to benefit from compound growth.
2. You get immediate tax savings because you can deduct the amount of your contribution from your tax return. In the table below, you can see that the actual cost of a $5,000 contribution into your RRSP might only be between $2,700 and $3,400 as a result of the deduction you can make.
|Marginal tax rate3||32%||39%||46%|
|Actual cost of contribution4||$3,400||$3,050||$2,700|
Depending on how much you contribute, and how much tax you have paid on your income so far that year, you may be eligible for a refund – which you can put toward next year’s RRSP contributions.
To learn more about the RRSP options available to you, visit AGF.com/RRSP.