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How To Use an RRSP To Save For Retirement


Fact Checked

This article is sponsored by Fidelity Investments Canada ULC. All opinions are mine.

The Registered Retirement Savings Plan (RRSP) is a great tool for saving toward retirement.

It supports a variety of investment assets and enjoys tax deferral on returns earned until you start making withdrawals.

While you can also use other investment accounts, such as the Tax-Free Savings Account (TFSA) and non-registered accounts, the RRSP allows you to deduct contributions from your taxable income.

RRSPs and Retirement Savings

The contribution room to an RRSP is 18% of your earned income from the previous year, subject to a maximum limit set by the Canada Revenue Agency.

Contributions reduce your taxable income, and you can claim a tax deduction in the contribution year or carry it forward to future years.

Capital gains, dividends, and income earned on your RRSP are not taxed until they are withdrawn. This allows your investments held within your RRSP to grow tax-deferred, potentially helping you grow your portfolio faster, compared to a taxable account.

When you eventually make withdrawals from your RRSP (presumably in retirement), you will be taxed at your marginal tax rate.

Getting Started With RRSPs

To be eligible to open an RRSP, you must have earned income, have a social insurance number, and must file tax returns in Canada.

You can generally open an account at most financial institutions, including independent wealth management firms, credit unions, banks and brokerage firms.

If you have filed a tax return, your notice of assessment will show your RRSP contribution room as of the beginning of the year. Keep track of your contributions throughout the year to avoid over-contribution penalties.

Before investing in your RRSP or other investment accounts, you should assess your risk tolerance. For example, are you comfortable with high-risk investments that offer potentially higher returns, or do you prefer a more conservative approach?

In general, your investment strategy will be impacted by your investment timeline, goals, and risk tolerance.

RRSP Investment Options

Your RRSP can hold a variety of investments, including:

Stocks: Investing in individual companies can offer high returns but comes with higher risk.

Bonds: These securities are generally less risky than stocks and provide a fixed income over time.

Exchange-Traded Funds (ETFs): These are baskets of other investment products like stocks or ETFs. They trade on stock exchanges (like stocks).

Fidelity Investments Canada ULC (Fidelity) offers a wide range of Equity, Fixed Income, Multi-Asset, and Crypto-Asset ETFs.

If you are a DIY investor, Fidelity’s All-in-One ETFs may be worth checking out. If you are looking for actively managed ETFs, they offer those too.

Mutual Funds: You can also invest in mutual funds which are diversified portfolios of stocks, bonds, or other securities like commodities.

Fidelity has multiple mutual funds you can choose from, including equity, fixed income, and multi-asset mutual funds.

How To Make The Most of Your RRSP

One way to be consistent with your RRSP investments is to consider setting up pre-authorized contributions on your preferred schedule. Automatic contributions also benefit from dollar-cost averaging.

Monitor your portfolio regularly and adjust your investments when needed to seek to ensure alignment with your risk tolerance and retirement goals.

Consider avoiding putting all your eggs in one basket by diversifying your investments.

Lastly, when it comes to investment fees, be sure to consider the value you’re receiving in return.

Portions © 2023 Fidelity Investments Canada ULC. All rights reserved. Fidelity Investments is a registered trademark of Fidelity Investments Canada ULC.

Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in mutual funds and ETFs. Please read the mutual fund or ETF’s prospectus, which contains detailed investment information, before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently, and investors may experience a gain or a loss. Past performance may not be repeated.

The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Particular investment strategies should be evaluated according to an investor’s investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.

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Editorial Disclaimer: The investing information provided here is for informational purposes only and is not intended as individual investment advice or recommendation to invest in any specific security or investment product. Investors should always conduct their own independent research before making investment decisions or executing investment strategies. Savvy New Canadians does not offer advisory or brokerage services. Note that past investment performance does not guarantee future returns.

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Enoch Omololu, MSc (Econ)

Enoch Omololu, personal finance expert, author, and founder of Savvy New Canadians, has written about money matters for over 10 years. Enoch has an MSc (Econ) degree in Finance and Investment Management from the University of Aberdeen Business School and has completed the Canadian Securities Course. His expertise has been highlighted in major publications like Forbes, Globe and Mail, Business Insider, CBC News, Toronto Star, Financial Post, CTV News, TD Direct Investing, Canadian Securities Exchange, and many others. Enoch is passionate about helping others win with their finances and recently created a practical investing course for beginners. You can read his full author bio.

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