One of the best ways you can prepare for retirement is by putting money into RRSPs while you’re still working. Whenever you put money into RRSPs, the government gives you back the income taxes you paid on the money you put into your RRSPs. This helps reduce your tax bill today, while encouraging you to save for tomorrow.
RRSPs Aren’t an Investment, They’re a Tax Deferral Strategy
You might’ve heard people refer to RRSPs as an investment, but they aren’t an investment. They’re a tax deferral strategy. You don’t pay income tax on your money when you put it in, you pay income tax on your money when you take it out. Your withdrawal usually happens decades later after significant, tax-free growth. If you withdraw the money when you are retired you are probably withdrawing it at a lower income tax bracket, saving you money on income taxes.
How Well Your RRSP Performs Depends on How It’s Invested
Inside your RRSP, you can choose different investment options such as a bank account, a GIC, a term deposit, a mutual fund, a segregated fund, stocks, bonds or real estate. The type of investment you choose impacts your rate of return. Because you’re investing for retirement, you are investing for the long-term, and you should definitely consider investment options with a higher rate of return.
RRSPs are still the best strategy to save for retirement for people who don’t have pensions through work. And if you do have a pension through work, RRSPs act as a great top-up to your existing savings. There are no downsides to having too much money in retirement – it just means you’ll be able to retire sooner or retire with a higher income.
Let us know if you’d like to learn more about RRSPs, investment options for your RRSPs, or if you’d like to boost your retirement savings with an RRSP loan.