It's never too early to start saving for retirement

January 4, 2016

Investing regularly in smaller amounts can help you get started. 

According to a national survey conducted by AGF Investments, saving for retirement is one of the top financial priorities for most Canadians. It’s difficult to predict how much you need to save and how much income you will need to cover your expenses in retirement, but the earlier you start planning the better. One of the first steps you can take is to know how much the government will provide in retirement income.

You’ve likely heard of Canada Pension Plan (CPP) and Old Age Security (OAS) benefits. But do you know how much they will be? For people entering retirement in 2015:

BENEFITS (2015)

Annual average Canada Pension Plan1

$7,682.76

Annual maximum Old Age Security2

$6,839.40

= Total annual income from government sources

$14,522.16

Although it’s likely that these numbers will increase as you approach retirement, CPP and OAS benefits will be modest and may be insufficient for you to meet your retirement goals.

If you want to supplement government benefits, think about using a Registered Retirement Savings Plans (RRSP).

Two important benefits of an RRSP

First, investments in your RRSP will grow tax-deferred, which means you don’t pay tax immediately on any capital gains or income you earn within the account. This leaves more money in your portfolio to benefit from compound growth.

Second, you get immediate tax savings because you can deduct the amount of your contribution from your tax return. In the table below, you can see that the actual cost of a $5,000 contribution into your RRSP might only be between $2,700 and $3,400 as a result of the deduction you can make.   

MARGINAL TAX RATE3

32%

39%

46%

RRSP contribution

$5,000

$5,000

$5,000

Reduced taxes

$1,600

$1,950

$2,300

Actual cost of contribution

$3,400

$3,050

$2,700

Depending on how much you contribute, and how much tax you have paid on your income so far that year, you may be eligible for a refund – which you can put toward next year’s RRSP contributions.

To learn more about supplementing your government retirement income and contributing to an RRSP, visit AGF.com/RRSP.

1 Source: Service Canada. Note: The amount of your pension will depend on how much and for how long you have contributed to the CPP and on your age when you want your pension to start. If you take it before age 65, your pension will be reduced, by up to 32.4% at age 60. If you take it after age 65, your pension may be larger, by up to 42% at age 70.

2 Source: Service Canada. If your net world income exceeds the threshold amount ($71,592 for 2014), you have to repay part or your entire OAS pension.

3 Source: Canada Revenue Agency. This is a hypothetical example to be used for illustrative purposes only.

The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.

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