The RRSP is short for Registered Retirement Savings Plan. It's a retirement vehicle created by the Canadian federal government in 1957 to encourage Canadians to invest in their retirement.
The benefits of contributing to such a plan include:
The maximum contribution in 2006 was $18,000 or 18 percent of your earned income less any pension adjustments you may have. When you turn 69, you must move your RRSP into a RRIF (registered retirement income fund) by the end of the calendar year. Each year thereafter, you must withdraw a minimum amount from your plan with the funds taxed as regular income.
In 2005, 6.1 million Canadians contributed $30.6 billion towards RRSPs. That's just 7 percent of the eligible contributions of $437 billion. Further, of the 86 percent of Canadians eligible to make contributions, only 31 percent actually did. The median contribution on an individual basis was $2,630.
Why is this number so low?
Reasons for this huge shortfall in contributions include:
Canadians have an excellent retirement vehicle available to them. Unfortunately, many aren't taking advantage of the tax deferral opportunity this generous system provides.
Here are a few tips to keep in mind that will help you reach your retirement goals using the RRSP: