Retirement Planning
Registered Retirement Savings Plan (RRSPs)
An RRSP allows you to save during your prime income earning years. This is done through making contributions to a savings account. The benefits are that the individual will receive a tax deduction on their contributions to an RRSP as the contribution is taken out before income tax is calculated. As well any payment of taxes is deferred until withdrawals are made, which is usually when the individual is retired and therefore has a lower marginal tax rate. The two main benefits of an RRSP are that they provide you with a tax break, and the investment can grow without tax consequences until you retire. RRSPs help you save for long-term, but in an emergency you can take out the money however if you do take out money before you retire, you will be taxed on the amount you withdrew at your current tax rate.
Individual RRSP
An individual RRSP is an RRSP account that is specified for a certain individual. Only this individual can contribute and withdrawal from the account.
Spousal RRSP
A spousal RRSP can be used for income spitting. If one spouse earns significantly more than another than the higher earning spouse can open an RRSP in a spouse’s name. The spouse can withdrawal money from account after a holding period. This means less marginal tax will be paid as the both spouses will have half of the RRSP income and therefore the tax will be spilt.
Why Not Just Government Pension?
The Canadian Government provides individuals with retirement payment to support the cost of living after retirement. This would be the Canadian Pension Plan (CPP) Retirement Pension and Old Age Security (OAS). Not everyone can receive these benefits and the amount given to the individual is only to support the basic cost of living. This amount may not be enough to sustain current living standards and thus should be supplemented with retirement planning such as RRSPs.
Canada Pension Plan Retirement Pension
To qualify you have to:
- Have contributed to the CPP for the required period of time and have met the requirements for earned income
- Over the age of 65. (or between 60-64 if special conditions are met)
- Apply for it! It does not start automatically
The benefits are a flat amount and are based on how much and how long contributions have been made to CPP and the age of retirement. The benefits earned through CPP are taxable and are meant to replace only 25% of the individuals past earnings.
To find out how much you would potentially receive: http://www.servicecanada.gc.ca/eng/isp/common/proceed/socinfo.shtml
Old Age Security (OAS)
To qualify you have to:
- Be 65 or over
- Live in Canada for a minimum of 10 years after the age of 18
- Apply for it! about three months prior to turning 65
Old Security is a basic amount decided by the government to cover the cost of living in Canada. This amount can be decreased by number of years an individual has not lived in Canada or by a high amount of retirement income. The amount is adjusted regularly in order to properly reflect the current cost of living. If retirement income is low an individual can apply for the Guaranteed Income Supplement (GIS) which is an additional OAS amount given to those individual with a low income.
In most cases the government retirement payments are mere fractions of an individuals’ current income. To see 2009 government payouts click the link below
2009 Government Pension Plan Payouts
Retirement planning plays a significant role in your financial future. Investing in an RRSP can make a world of difference when it comes to retirement time. With more financial security you will be able to continue a standard of living while getting the most out of retirement years.
Getting started with an RRSP as early as you can is important, that’s why we at Svab Insurance Inc. will be happy to answer any further questions you may have. Contact us today to set up an appointment to help you bring peace of mind knowing that your future is in proper hands.
