Drawing Up a Savings Plan
Want to save for a trip abroad or for your first car? Want to pay for the next semester or have a little cushion for anything unexpected?
With the Periodic Savings and Investment Plan, it’s easy. Just decide how much you want to save every week, two weeks or month, and the amount will be automatically transferred into your savings account. The money will grow, little by little, without you having to give it a second thought.
To calculate how much you need to put aside to reach your financial goal, use our
How Much to Save to Reach a Savings Goal calculator.
After School Comes a Career
School is over and you’ve got your diploma in hand. It’s time to take the plunge into the job market. What's the biggest change? The paycheque… and the new responsibilities.
It all starts, of course, with paying back student loans. Your lifestyle changes too. A new apartment? A relationship? Life can go off at all sorts of tangents. It's also time to start thinking about building an estate—investing in your future.
Registered Retirement Savings Plan (RRSP)
It may seem a little premature to start talking about RRSPs but there are four things about RRSPs that will make even the sceptics think twice.
- Contributing early to an RRS1, is not only more profitable than starting late, but it also requires less money to begin with. Check out the table below for proof.
- Investing in an RRSP lets you amass money—tax-sheltered—toward your future home thanks to the HBP (see below).
- Investing money in an RRSP helps lower your tax bill and may even generate a tax return to be used towards your student loan.
- When you contribute to an RRSP, any unused eligible deductions can always be carried forward to a later year. That means that you can postpone claiming the deduction until you are in a higher tax bracket, when it is more advantageous for you.
Good to know, don’t you think?
The Bottom Line
When we say contributing early is advantageous, we’re not exaggerating. Here is the RRSP story of two people with very different savings habits—and somewhat telltale names!
|The True Story of Ms. Early and Mr. Late|
|Ms. Early||Mr. Late|
|Started contributing||Age 25||Age 35|
|Number of years contributing||15||30|
|Monthly contribution (at the start of the month)||$150||$150|
|Return (interest rate compounded annually)||6 %||6 %|
|Amount accumulated at age 65||$188,160||$151,431|
|Difference in contributions||$54,000 - $27,000 = $27,000|
|Difference in accumulation||$188,160 - $151,431 = $36,729|
|Total advantage||$36,729 + $27,000 = $63,729|
Ms. Early manages to amass $36,729 more than Mr. Late and by investing $27,000 less! And with a higher monthly contribution, she could have amassed so much more! Not bad, eh?
To help you determine how much to save and the amounts to deposit for your retirement, use our
What Will Your Needs Be When You Retire? calculator.
Home Buyers' Plan (HBP)
With the HBP, you can withdraw up to $35,000 from your RRSP toward the purchase of a home without paying tax on the withdrawal2. Afterwards, you have to repay 1/15th of the amount each year over a period of 15 years. If, for example, you withdraw $15,000, you have to pay back at least $1,000 a year for a period of 15 years, and with 0% interest!
You can even borrow money in order to get access to the plan3. But we’ll talk about that when you're ready to buy a home. Until then, make RRSP contributions, no matter how little you can afford.
1. Administration fees may apply to registered accounts; however, this fee is waived if your portfolio exceeds $25,000 or comprises guaranteed investment certificates exclusively.
2. Certain eligibility conditions apply. Find out more from your advisor or on the Canada Revenue Agency Web site.
3. Subject to credit approval.