Saving for retirement in Canada: How RBC Royal Bank can help
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Investments
Saving for retirement in Canada:
How RBC Royal Bank® can help
Saving for retirement is a key part of building your future
financial security. An RBC Royal Bank Registered Retire-
ment Savings Plan (RRSP) can play an important role in
helping you live the lifestyle you want after you retire.
As a newcomer to Canada, you’ve > Other Canadians have saved money
been through a number of major throughout their careers specifically
changes recently. Once you begin for retirement years. This allows
to feel settled, with a home and them to afford the lifestyle they want
probably a steady job, you are likely to when they are no longer working and
start thinking about the future. What earning an income.
steps do you need to take today to
make you and your family’s lifestyle Where retirement money comes from
secure in the future? Retired people in Canada may receive
money regularly from a number
One very large part of your future is
of different sources. The following
retirement. Where will your money
are the main sources of retirement
come from when you stop working?
income:
What will your life be like? Where will
you live? > 1. Government benefits. There are
two government programs that
You’ll notice that people in Canada
many Canadian retirees qualify for:
often talk about retirement. There are
a couple of reasons: he Canada Pension Plan (CPP).
T
This program pays a monthly
> A large percentage of the population
benefit to those who qualify after
is at or approaching retirement
they retire. Anyone who contributes
age. While the traditional age for
to the program and meets other
retirement in Canada is 65, many
requirements may receive benefits.
people retire as early as 55, or
If you are an employee, a portion
even younger.
of each paycheque will be sent
> Many people who are approaching to the government to be put into
retirement are considering the plan on your behalf. If you are
continuing to work or changing self-employed, you make your
careers in their retirement. contributions at the same time
as you pay your income tax. The
amounts contributed to the plan
grow over time, and entitle you2 Investments Saving for retirement in Canada: How RBC Royal Bank can help
to receive payments out of the > 3. Personal savings. Not everyone in funds invested outside of an RRSP is
plan (your pension) once you stop Canada belongs to an employment considered earnings, which you would
working. If you live in Quebec, your pension plan. And, as you can see have to report in your tax return and
contributions are directed instead to above, the maximum payments pay tax on. The tax deferral within an
the Quebec Pension Plan (QPP), a from the government programs RRSP allows your earnings to grow
similar program run by the Quebec are probably not enough for you and to generate additional earnings
government. The most that a person to live on comfortably. That’s why on that growth over time. This is
can receive under these plans was most people also set aside their known as compound growth, and it
just over $10,000 per year in 2007, own savings. can significantly increase the value
possibly more if the pension was of your plan over the period invested,
Whether you’re early in your work life
not requested until after age 65. The giving you the opportunity to live your
or getting close to retirement age, we
maximum amount is adjusted every retirement years more comfortably.
can help you look into setting aside the
year and depends on several factors,
money you need for retirement. When you withdraw money out of
including when a person arrived
the plan (ideally, when you retire),
in Canada, so most newcomers are RBC Royal Bank has helped thousands
you’ll report the full amount of the
unable to qualify for the maximum. of newcomers to Canada save for their
withdrawals as income on your income
retirement. In most cases, the most
ld Age Security (OAS). Old Age
O tax return for that year. The amount
effective way to start saving is through a
Security is paid to every Canadian of tax you’ll pay will depend on what
Registered Retirement Savings Plan, also
over the age of 65 who meets certain your total income is that year from all
often referred to as an RRSP or RSP.
requirements. In order to be eligible, sources, and is based on your personal
you must have lived in Canada for tax bracket. Many people are in a lower
What is an RRSP?
at least 10 years after 18 years of tax bracket after they retire, because
An RRSP is a type of investment account
age. You may be eligible for OAS they are no longer working full time.
in which you put aside money to be
even if you live outside of Canada, However, because this is not always the
used when you retire. The money
provided you are over 65, lived in case, please consult with your advisor to
can be put into a variety of types of
Canada for at least 20 years after determine the best course of action for
investments, including cash and mutual
age 18 and were a Canadian citizen your particular situation.
funds. An RRSP is “registered” with the
or legal resident when you left.
Canada Revenue Agency and has two You can also withdraw money from
The maximum payment in 2007
particular advantages: your RRSP before you retire. However,
is just over $6,000 if you lived in
it may not be the best place to look
Canada as an adult for at least 40 > Contributions are tax-deductible.
when you need cash for an unexpected
years by age 65. Some or all of your When you make a contribution to an
expense. Apart from certain temporary
payments may be recaptured by the RRSP, that amount can be deducted
withdrawals allowed for a home
government if you earn more than a from the income that you report on
purchase or education, any money you
certain amount of money — $64,718 your personal income tax return for
take out of your RRSP is considered
in 2008 — from other sources. the year. So, for example, if you earn
income and is taxable, just like
$30,000 a year, have income from no
In addition to OAS, you might withdrawals made after you retire. The
other sources and contribute $2,000 to
qualify for the Guaranteed Income bank would be required to deduct a
your RRSP, your taxable income for the
Supplement (GIS) if your income certain percentage of such withdrawals,
year falls to $28,000.
falls below a certain level. a “withholding tax,” and send it to the
> Plan earnings are tax-deferred. government toward the taxes owing
> 2. Workplace pension plans. Some
The earnings that you get from your on the withdrawal. The actual amount
employers offer a workplace group
plan (also referred to as “investment of tax would be adjusted according to
savings or pension plan. In many
income”) are not subject to tax while your personal tax bracket when you
cases, both you and your employer
the funds remain in your RRSP. In file your tax return. You may consider
will contribute to such a plan, with
other words, the tax is “deferred” consulting with a qualified tax advisor
the savings used to provide income
until later. The income earned on before making a withdrawal from your
for you in retirement.3 Investments Saving for retirement in Canada: How RBC Royal Bank can help
RRSP so that you can make an informed notified you of any error that needed to
decision about any tax implications. be addressed. Because the tax laws can What you need
be confusing, it’s a good idea to do this to open an RRSP
Because RRSPs offer generous tax breaks,
before making contributions. You can
there’s a limit on how much you can
begin making RRSP contributions after You can open an RRSP in a single visit
contribute each year. Your maximum
you’ve been working in Canada for at to any RBC Royal Bank branch. To open
contribution is generally 18% of the
least one year. an account and make a contribution,
amount that you earned during the you must have:
previous year, up to a specified dollar You might also want to consider setting
> A social insurance number
maximum set by the government, less up a spousal RRSP, which is an RRSP
any pension adjustment related to an registered in your spouse’s name. You > Earned income in a previous year,
employer pension. can put your entire contribution into based on a filed income tax return.
either plan, or split your contribution If you haven’t started working yet
Your maximum contribution in 2008, and don’t have a social insurance
in whatever proportion you want
for example, would depend on what you number, you can go to any Service
between the two. An RBC Royal Bank
earned in 2007. If you earned $30,000 Canada location. You’ll need to show
representative can help you determine
in 2007, then you could contribute an original document that proves your
if a spousal RRSP is a good strategy for
up to $5,400 (this example excludes identity and status in Canada (such as
your situation, as there are a number of
company pension). The maximum a Certificate of Canadian Citizenship or
things to consider.
dollar amount for 2008 is $20,000 and Permanent Resident Card). Once your
is scheduled to increase by $1,000 each application is completed, you should
RRSPs for other life goals
year, reaching $22,000 in 2010. If you be able to get your social insurance
The main purpose of an RRSP is to help
don’t contribute the maximum in any number within five working days.
you save for your retirement. But the
year, your unused contribution room There are additional important
government also allows you to use the
is carried forward and added to your decisions to be made when opening
funds for other important life goals.
contribution room the following year. If an RRSP. Take the time to meet
you’re not in the habit of contributing > 1. Buying a home. The RRSP Home with your RBC representative to
the maximum every year, this RRSP Buyers’ Plan lets you and your discuss your options and make your
“unused deduction limit,” as it’s called, spouse withdraw up to $20,000 decisions carefully.
can grow very large. each, tax-free, from your respective
RRSPs to build or buy a home. To
If you filed a personal income tax return first repayment is due two years
be eligible for the plan, you and
last year, your contribution limit for this after the year of the withdrawal.
your spouse must have not owned
year is easy to figure out. Just look at > 2. Going to school. The Lifelong
and occupied, as your principal
your Notice of Assessment — the letter Learning Plan lets you withdraw
residence, a home in Canada in the
you received from the government after up to $10,000 per year over four
past five years. You are required to
you filed your return that confirmed years, tax-free, from your RRSP
repay the amounts withdrawn back
the calculations on your return or to a maximum of $20,000. The
into your RRSPs over 15 years. The
Do you need an RRSP if you’re planning not to retire in Canada?
Even if you plan to retire in a different country, contributing to an RRSP here in Canada can provide a number of benefits:
> You’ll get a tax deduction for your time, your RRSP can stay here and tax treaty. As well, the money you receive
contributions and your RRSP earnings will continue to grow. may have tax implications in your country
be tax-deferred for Canadian tax purposes of residence that will also need to be taken
> You can take money out of the plan even
as long as they stay in the plan. into consideration. U.S. taxpayers need to
if you don’t live in Canada. Withdrawals
be aware of U.S. tax consequences even
> If you leave the country for an extended made by non-residents are subject to
while they are living in Canada.
25% Canadian tax, perhaps less under a4 Investments Saving for retirement in Canada: How RBC Royal Bank can help
funds must be used to pay for the need for the future. One of the most
education of you or your spouse effective ways to help you reach Turning your savings
(not your child). You must repay the your savings goals is to set up a into retirement income
full amount over 10 years. regular contribution plan. At RBC
Royal Bank, you can make automatic Suppose that you’ve been
Whether you withdraw funds from
contributions with RSP-Matic®. contributing regularly to your RRSP
your RRSP for a home purchase or
Contributions, which can be as low over the years, and now have a
for education, if you don’t pay back
as $25, are deducted automatically substantial amount in your plan. How
the minimum required, a portion of
from your bank account every do you get the money out?
the funds that you withdrew will be
month, week or on whatever As mentioned above, withdrawals you
considered income for that year and
schedule works best for you. make are taxable. However, there are
you’ll have to pay tax on that money.
a few options that you should consider
> 3. Let your investments grow for
when you are ready to retire and start
Tips for maximizing your RRSP savings the long term. For a long-term
turning your RRSP into a source
Here are some easy strategies that will goal like retirement, you need
of income:
help you make the most of your RRSP. investments that have the potential
to earn returns higher than the rate > Buy an annuity. With an annuity, you
> 1. Start today. No matter what age you give a sum of money to an insurance
of inflation. Usually, that means
are when you start your RRSP, you’ll company that, in return, will make
including some growth-oriented
benefit immediately from the tax regular payments to you (usually
investments like equity mutual
savings and tax-deferred compound monthly) of a guaranteed amount
funds.
growth. The chart on this page for the rest of your life or a specified
shows how even small amounts can To learn more about how RBC Royal period. You will pay tax on the
add up quickly, especially when you Bank can help you save for retirement, payments in the year you receive them.
start early. just visit any branch to talk to an RBC > Transfer your RRSP to a Registered
advisor. We can work with you to help Retirement Income Fund (RRIF). A
> 2. Commit to regular savings. We all
identify your retirement savings needs RRIF is similar to an RRSP. Like your
have a lot of day-to-day expenses.
and develop an action plan to help you RRSP, the money in your RRIF grows
Sometimes, it can be hard to
reach your goals. tax-deferred until you withdraw it. But
remember to set aside what you rather than making contributions as
you do with an RRSP, you must make at
Small amounts make a big difference least minimum withdrawals from your
RRIF each year. All amounts withdrawn
are considered taxable income.
Tax-deferred compound growth makes an RRSP a powerful investment vehicle
no matter how old you are when you start to contribute. But as this illustration You can have both an annuity and a
shows, the growth potential is truly astonishing, when you start young. This RRIF. The benefits to having a RRIF are
illustration assumes an annual compound growth rate of 7%. its flexibility and ongoing tax deferral.
You should also know that you don’t
Your goal: To have $500,000 in my RRSP by the time I am 65
have to convert your RRSP when you
If you start when you are 25, you will need to contribute: retire. Depending on whether you
$203 a month need the income, you might choose
to convert earlier or later. The only
If you start when you are 35, you will need to contribute: requirement is that you must convert
$428 a month your RRSP to some form of retirement
income by the end of the calendar
If you start when you are 45, you will need to contribute:
year in which you turn 71.
$986 a month
Your RBC representative can help you
If you start when you are 50, you will need to contribute: decide when to convert your RRSP
$1,608 a month and which option to choose.5 Investments Saving for retirement in Canada: How RBC Royal Bank can help
Important terms How RBC Royal Bank can help
Here is an explanation of some important terms you may encounter when considering For more information about how we
your retirement savings options or that you’ve read on these pages: can help newcomers to Canada,
please visit our Website:
Compounding. Investment income that is Mutual fund. A portfolio of investments www.rbc.com/canada.
earned on previously earned investment managed by professionals on behalf of a
We have created publications
income. This “income on income” means number of investors, who own “units” in
specifically for newcomers to Canada
growth in the income over time. the fund.
on the following topics.
Dividends. Company earnings that are Registered Retirement Income Fund > Bank accounts
paid out to its shareholders. (RRIF). A tax-deferred investment account > Credit
Earned income. For the purpose of to which you transfer RRSP assets to > Buying a car
calculating your RRSP contribution limit, provide a stream of income during > Buying a home
earned income is generally the money retirement, as provided in the Income > General insurance
made by you from employment. It can Tax Act. > Creditor insurance
also include net rental income, royalties Registered Retirement Savings Plan > Registered Retirement Savings
and some other types of income. (RRSP). A special investment account in Accounts
which contributions can be tax deductible > Registered Education Savings
Guaranteed Investment Certificate (GIC).
and investment earnings are tax-deferred, Accounts
A type of deposit investment that pays
as provided in the Income Tax Act. > Investing
a predetermined rate of interest for a
specified term. Tax deduction. An amount that is These publications also exist in the
subtracted from your income before your following languages:
Interest. Payments made by a borrower
taxes are calculated. English Tamil
to a lender for the use of the lender’s
French Tagalog
money, or paid on deposits at a bank or Tax-deferred. An investment holding
investment company. within a registered plan, that is not Chinese (traditional Farsi
subject to tax until funds are withdrawn. and simplified) Korean
Money Market Funds. A type of mutual
Punjabi Romanian
fund that invests mostly in short-term,
Hindi Spanish
government-issued debt and other low-
Urdu Russian
risk, cash-equivalent investments.
Please feel free to ask for the publications
of your choice.
The material in this article is intended as a general source of information only, and should not be construed as offering specific tax, legal, financial or investment advice.
Every effort has been made to ensure that the material is correct at time of publication, but we cannot guarantee its accuracy or completeness. Interest rates, market
conditions, tax rulings and other investment factors are subject to rapid change. Individuals should consult with their personal tax advisor, accountant, or legal profes-
sional before taking any action based upon the information contained in this article.
Financial planning services and investment advice are provided by Royal Mutual Funds Inc. Royal Mutual Funds Inc., RBC Asset Management Inc., Royal Bank of Canada,
Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. Royal Mutual Funds Inc. is licensed as a financial
services firm in the province of Quebec. Using borrowed money to finance the purchase of securities involves greater risk than a purchase using cash resources only.
Should you borrow money to purchase securities, your responsibility to repay the loan as required by its terms remains the same even if the value of the securities
purchased declines.
® Registered trademarks of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada.
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