Hi everybody:

I am so confused about RRSP. I have checked a lot of sites about this and learned some basics about it. But still there are still some questions popping up in my mind:

1- How should I save for RRSP? I mean is there anything like an account in a bank where i should pay the designated amount in an specific period of time?
2- who should say for how many years i have to pay for this?
3- When i get to the last year when i want to retire, then what happens? Is bank going to give the whole money back to me all together with the interest it has earned? or they will pay me monthly salary-like to day i will kick the bucket?
4- is there any maximum or minimum for RRSP payments?
5- What are the consequences, if one doesn't save for RRSP?

Thanks

an RRSP is a personal pension plan that you put as much as you like into when and however you like and for as long as you like until retirement. There is a maximum you are allowed to contribute each year based on your earnings up to a maximum limit ($18k I think). The system is a tax deferal thing. Whatever you pay into it each year you get the tax back that you paid on that amount. When you retire you start drawing on it and pay tax on the amount you draw, this is likey to be less than your normal working life salary so you will probably be in a lower tax bracket so pay less tax on it. There are are some issues you will want to look into though. At a certain age (I think 65) you are forced to put the funds into a RIF (regular income fund??) this may put you into a higher tax bracket if your RRSP account is very high. The common practice is for couples to split the contibutions into equal amounts (you can pay into your spouses' fund up to your own limit) this ensures that your retirment income is split between the 2 of you keeping the tax down.

Do you need one??? that depends on your finacial position ie. could you live without a pension?? I'm not an expert in this, others on the forum may answer this better. The best advice would be to seek independant financial advice when you get here.

Hi Brit,

Thank you for your explanations. The thing i don't understand now is,

1- what if i don't save on rrsp. then what are the other alternative pensions i can expect to receive when i get to 65?
2- Can i go retired sooner than 65, for example at 55?

Thanks again
Ra ska

As far as I understand it you can choose to take your money out when ever you like. The maximum you can put in is 18% of the previous years canadian earnings i.e. for the first year you can not put money into the RRSP. There are ways of splitting the amount between your own and your spouses RRSP. Can get quite complicated would suggest seeing an expert. The RRSp is actually a mutual fund or GIF etc. so you are investing in the stock market. The value of your investment can go down as well as up etc. etc. Unlike the U.K. where I came from you have to do all the running arround and arranging of the RRSP the company just sends a cheque each month. I hope this info helps.

Phil

Here is a link to a government website explaining what an RRSP is.

You are forced to turn your RRSP into a RRIF at age 69.

RRIF (registered retirement income fund) a withdrawal plan registered with Revenue Canada in which proceeds accumulated in an RRSP are used to provide an annual income. Investment earnings continue to accumulate on a tax-sheltered basis, but withdrawals are taxed as income.

Revenue Canada prescribes an annual minimum withdrawal, which depends on the age and market value of the RRIF at the beginning of the year. Once a RRIF is opened, payments must commence in the following year.

There is no minimum age to set up a RRIF. An individual may hold several RRIFs with different financial institutions. The RRIF holder maintains controls of the investments. Funds held in a RRIF may also be used to purchase an annuity from a life insurance company.


If one does not have an RRSP and one also does not have a company pension then you will be eligible for Canada Pension Plan benefits which are minimal and are based on the number of years you have contributed to the plan. Normally you start collecting your Canada Pension at 65, you can start collecting it as early as 60 but at a reduced rate.

Then at 65 you would be eligible for Old Age Security which could include the Guaranteed Income Supplement if your total income is below a predetermined level.

A lot of reading but you did ask.