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What is an RRSP?
A Registered Retirement Savings Plan (RRSP) is a registered plan that encourages Canadians to save for their future. The plan can include a mix of investments including mutual funds, GICs, stocks and cash. Each year you have a maximum contribution limit, which includes any unused contribution limits from previous years. The amount that you contribute for the year may be deducted from your taxable income, reducing your income tax for the year.
Who should have an RRSP?
Any Canadian between 18 and 71 who earns income should consider taking advantage of the benefits that an RRSP offers. It is especially important for anyone that wants to maintain the same standard of living during retirement to start saving as early as possible. Even if your employer supplements your pension plan with contributions, it may not be enough for the retirement you want.
Benefits of an RRSP
Tax savings now
Every dollar you contribute to an RRSP can reduce your taxable income for that year, which means you pay less tax.
Tax-sheltered growth
Your initial investment and investment earnings continue to grow in your RRSP, sheltered from tax until money is withdrawn. This helps you grow your investments and reach your retirement goals sooner.
Flexible for your goals
You can borrow from your RRSP for some of life's major milestones - buying your first home through the Home Buyers' Planoffered by the Government of Canada and pursuing an education through the Lifelong Learning Planoffered by the Government of Canada.
Spousal income splitting
A spouse in a higher tax bracket can contribute to a Spousal RRSP in the name of their lower income spouse. This means the higher earning spouse can reduce their taxable income now and the retirement income may be taxed at a lower rate when it is withdrawn from the Spousal RRSP, subject to a minimum waiting period.
Three steps to create your retirement plan
1. Define your goals
Name it.
Know what you're investing for.
Date it.
Determine when you'll use your investment.
Estimate the amount.
Add up how much you may need for each goal.
2. Design a strategy
Evaluate your risk tolerance.
Decide how much of the markets' ups and downs you're comfortable with.
Diversify.
Spread your investments across different types of assets to lower your overall risk.
Run the numbers.
Calculate how much you'll need to invest to meet your goals or how much income you'll need in retirement. Your CIBC advisor can help you determine the appropriate amount.
3. Execute your plan
Take action.
Select an investment that aligns with both your risk tolerance and goals.
Make it automatic.
Set up regular investments to help ensure you're consistently building on your investment.
Meet your investment goals
Maximize your unused RRSP contribution room. Borrow $5,000-$50,000.
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