Is an Empire Life RRSP for you?
If you are like most Canadians, you need to rely on your own savings to fund the retirement lifestyle you want. If you have earned income, an RRSP is one of the most tax-efficient solutions.
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How RRSPs work
Canada Revenue Agency prescribes an annual maximum contribution amount based on a percentage of your earned income. To find out how much you can contribute, check your Notice of Assessment from Canada Revenue Agency.
Eligible RRSP investments include cash, guaranteed deposits, segregated and mutual funds, stocks and bonds.
Your RRSP contributions are deducted from your earned income for that year and your investments in an RRSP grow sheltered from tax.
You can withdraw from your RRSP at any time, provided your RRSP is not locked-in under pension legislation. The amount you take out is added to your income in the year of withdrawal and tax is withheld at source.
When you turn 71, you have to close your RRSP. You have three options at this point:
Transfer your investments to a Registered Retirement Income Fund
Use the funds to buy an annuity
Cash in your investments and claim the entire amount as income
Key Features and Benefits
Immediate tax deductions
Every dollar you contribute to an RRSP, within your RRSP contribution limit, reduces your earned income for that year. This reduces the amount of tax you pay and is especially beneficial if you are in a high marginal tax bracket.
Tax-sheltered growth
The investment growth in your RRSP is sheltered from tax. That means you don't have to pay taxes on interest, dividends or capital gains from your RRSP investments while the funds remain in the RRSP.
Over the years it could mean a lot more money in your pocket to fund the retirement you want.
For example, if you are in a 29.65% marginal tax bracket, a $50,000 investment in an RRSP earning a 6% annual compound rate of return would grow to $160,357 in 20 years. The same 6% investment in a non-sheltered savings plan would only grow to $114,286. That's a difference of $46,071.*
* For illustrative purposes only. Assumes the growth in the investment in the non-tax sheltered savings account is taxed as interest income for an Ontario resident with an annual income of $70,000, taking into
account federal and provincial taxes. The return on the non-tax sheltered savings grows at an after-tax rate of return of 4.22%.
Spousal contributions
Another way to reduce your overall tax bill may be to make a spousal contribution. The higher-income spouse can contribute to the lower-income spouse's RRSP. The contributing spouse always gets the tax deductions, but generally, the lower income spouse pays the tax when the money is withdrawn.
Investment solutions to meet your needs
With Empire Life, you have a choice of investments to meet your retirement goals:
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