RRSP Babbling... Can it really benefit you to have an RRSP? By Mo2 on February 9th, 2008

I’ve decided that I’m going to change my writing style. I guess it’s just one of those phases you have with anything in life and it’s happening with my writing. I want to write more, but I’m lazy you see, and when I have to think about structure, grammar, outlines, etc. it makes me want to do something else. So I’ve decided to write freely and be a little disorganized and hope that my thoughts are somehow conveyed to you, the reader.

RRSP season as we call it here in Canada has arrived. Calling it the “RRSP Season” is extremely misleading since RRSP contributions can be done any time of the year. It’s just most people are lazy or confused and don’t know what an RRSP is.

What is an RRSP?
An RRSP stands for Registered Retirement Savings Plan, which essentially helps you plan for the future. For whatever you contribute into the RRSP you can make a tax deduction onto your income up to the contribution limit, which is 18% of your income to a total of $19,000 for your 2007 income. You can invest the money in your RRSP in all sorts of investment vehicles or just stick them all in term deposits it’s up to you. The great thing about this is that you can keep your money invested and have it compound tax-free until you take it out.

Retirement Savings? I think not!
The name RRSP is misleading in my opinion. There are so many ways of using the RRSP other than for retirement that it should be named something else. Besides you can ALWAYS take money out of the RRSP without a penalty (at the time of this article). There indeed is a withholding tax, but this is not a penalty. The withholding tax is something that you will have to pay anyway, it’s just taken at the time of withdrawal from your RRSP and if the percentage is above your tax bracket, you will receive a refund later on. And vice versa if it’s lower than your tax bracket.

You can also use the RRSP towards your first home purchase or to finance your education. Of course, there are exceptions as there always are but it’s worth taking a look at investing in RRSP.

Mo2 Thinks...
I honestly used to think that RRSPs were a waste of time and money. But after taking some quality time looking into them I can assure you that I will be doing whatever I can to maximize my contribution to the RRSP. Having your money compound tax-free until you retire is unbelievably. Just go to any financial website (other than mine since I’m too lazy to create a calculator for you) and check out one of their compounding calculators and try out the one with after-tax returns and you’ll know what I’m talking about.

Honestly, investing is tough. As much as I have spent countless hours (yes that’s at least a 100 hours) reading about finance and investing there is no such thing as the Holy Grail. And guess what, there never will be. You simply have to diversify your portfolio and hope that something will turn out to be a winner. By putting money in your RRSP you lower your risk a little because even if you come out with a lower return one-year, you won’t be taxed on it so you won’t have too much to complain about.

Obviously, investing in RRSP and what you invest in within your RRSP is a different story. Reread that sentence if necessary. You should make RRSP part of your investing for the future. Have money in your savings account, put money in your non-registered account, and buy that income property you were thinking about, it would all put you one step to your financial freedom and a happy retirement.

It all takes time and that’s ok, RRSPs will help you get one step closer to a goal that can sometimes be overwhelming. We all have time, let’s have it work for us for a change.

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Please note that everything I write here is of my personal opinion and does not reflect the opinion of any association or organization (non-profit or for-profit) that I am a part of.

If you would like to comment on this article or anything on this website, please feel free to e-mail Mo2. He can be reached at Mo2@Mo2Thinks.com. Thank you for visiting!