I am going to start off my series by explaining RRSP's or also known as Registered Retirement Savings Plans. With me coming from the United Kingdom I learnt from a relatively early age that by the time I get to retirement age, the government probably won't have a social security system to pay for me if I'm negligent financially, and this is the same across the entire western world due to the baby boomers retiring soon! So if you're a person who doesn't know the ins and outs of saving for retirement, or just doesn't care, this article will help to explain the benefits of an RRSP and some of what you can do with it.
One thing I have come to learn in my years on this earth is that people learn in different ways, dependent on my mood I can either learn by watching something, listening to something or actually doing it, and I know I am not unique. So before I get into the ins and outs of RRSPs and fill your head with information I want to give the do-ers out there something to look at first. I have found a RRSP Savings Calculator supplied by BMO that will allow you to understand the amount you will need to save per year to secure your retirement, have fun playing around with it!
An RRSP is a government sponsored scheme which allows its users to defer taxation on income. When you receive a pay cheque you are normally obligated to pay and lose income tax, however if you make the decision to contribute to your RRSP you will not be liable for the tax and enjoy the benefits of the extra capital. If you live in Ontario and earn $60,000 per annum, you are liable for $12,291 in taxes that year, and you are able to put $10,800 into your RRSP. If you do put your full amount in your RRSP you will defer $3,364 in taxes meaning you can start earning interest on that extra savings straight away.
You will have to pay taxes some day; unfortunately the government doesn't love us enough to let us get away with no taxes. When you do finally decide to retire and start withdrawing from your RRSP you can do so but you will be taxed at the Marginal Tax Rate based on your income. The marginal tax rate at retirement may be less than you have been paying in your working life so this can be financially beneficial for you.
You can withdraw money from your RRSP at any point in your life but the money will then become taxable, so using it as a way to temporarily overcome a period of financial difficulty with the hope of replenishing the fund is never a smart move.
This is just a small overview of how an RRSP can benefit you and the inner workings as a retirement tool, ultimately you have to remember it is an investment vehicle and does not come without risk, so please do research into an investment plan and also the available RRSP investment vehicles and choose the right one for your personality.
A more comprehensive version of this article can be found at Canada Finance
Article Source: http://EzineArticles.com/?expert=Matthew_Kirkland
