Registered Retirement Savings Plan (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 stocks, ETFs, mutual funds, GICs and more. Each year you have a maximum contribution limit of 18% of your previous year’s earned income, plus any unused contributions from previous years. You can deduct your yearly contribution from your taxable income, reducing your income tax for the year.

In a nutshell, the RRSP provides tax benefits to encourage you to save for retirement. Say you contribute $10,000 to your RRSP and your tax rate is 30%. You get a $3,000 tax refund on your contribution, plus your full $10,000 is still invested. Not bad, eh?

Any Canadian between 18 and 71 who earns income should consider taking advantage of the benefits an RRSP offers. If you want to maintain your standard of living during retirement, it’s important to start saving ahead of time. Experts typically recommend replacing 50 to 70% of your pre-retirement income. For example, if you expect to earn $100,000 per year just before retirement, consider aiming for a retirement income of at least $50,000 to $70,000 per year. A workplace pension plan and government programs, such as the Canada Pension Plan (CPP), Quebec Pension Plan (QPP) and Old Age Security (OAS), may not be enough to get you all the way there, so the rest comes from your RRSP or other personal savings.

Tax-sheltered growth

Your initial investment and investment earnings continue to grow in your RRSP, sheltered from tax until you withdraw money. This helps you grow your investments and reach your retirement goals sooner.

Flexibility for your goals

The Government of Canada lets you borrow from your RRSP for some of life’s major milestones. You can access funds to buy your first home through the Home Buyers’ Plan Opens a new window.. If you’re pursuing an education, consider the Lifelong Learning Plan Opens a new window..

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. The retirement income may be taxed at a lower rate when it’s withdrawn from the spousal RRSP, subject to a minimum waiting period.

An RRSP is not an investment in itself. Think of an RRSP like a garden, while your investments are like trees that grow in the garden. Here are two steps to get started.

1. Prepare your garden 

This means setting up an RRSP account with a brokerage firm. The account is registered with the Government of Canada and linked to your Social Insurance Number — that’s the “registered” part of RRSP. This gives you the benefits of an RRSP, including getting a tax deduction for your contributions and tax-free growth until you withdraw your money.

2. Grow some trees

Now you’ve got your garden, you’re ready to grow some trees and plants. Choose from a variety of investments, including stocks, bonds, ETFs and mutual funds. Select an asset mix — a blend of stocks, bonds and cash — that fits your time horizon and risk tolerance. Decades until retirement? Consider emphasizing stocks for long-term growth. Close to retirement? Consider balancing stocks with bonds and cash for stable income.

Happy with your investment? Make it a habit with a Regular Investment Plan. This lets you contribute automatically to your investments from your bank account, like $25 biweekly, $50 monthly, or whatever you choose. With a Regular Investment Plan, you’ll be adding to your investments all the time, without having to think. This is a simple and powerful way of paying yourself first — making sure you’re not just paying bills but building your wealth.