It's never too early to start saving for retirement

By: Sound Choices • January 17, 2018 • Personal Finance

It’s difficult to predict how much you need to save and how much income you will need to cover your expenses in retirement, but the earlier you start planning the better. One of the first steps you can take is to know how much the government will provide in retirement income.

You’ve likely heard of Canada Pension Plan (CPP) and Old Age Security (OAS) benefits. But do you know how much they will be?

Government plans (October 2017)
Average Canada Pension Plan1 $7,699.56
Maximum Old Age Security2 $7,039.92
= Total annual income  $14,739.48

Although it’s likely that these numbers will increase as you approach retirement, CPP and OAS benefits will be modest and may be insufficient for you to meet your retirement goals.

If you want to supplement government benefits, think about using a Registered Retirement Savings Plans (RRSP).

Two important benefits of an RRSP

1. Investments in your RRSP will grow tax-deferred, which means you don’t pay tax immediately on any capital gains or income you earn within the account. This leaves more money in your portfolio to benefit from compound growth.

2. You get immediate tax savings because you can deduct the amount of your contribution from your tax return. In the table below, you can see that the actual cost of a $5,000 contribution into your RRSP might only be between $2,700 and $3,400 as a result of the deduction you can make.

Marginal Tax Rate3 32% 39% 46%
RRSP contribution $5,000 $5,000 $5,000
Reduced taxes $1,600 $1,950 $2,300
Actual cost of contribution4 $3,400 $3,050 $2,700

Depending on how much you contribute, and how much tax you have paid on your income so far that year, you may be eligible for a refund – which you can put toward next year’s RRSP contributions.

To learn more about supplementing your government retirement income and contributing to an RRSP, contact your financial advisor and visit

1Source: Service Canada. Average Canada Pension Plan (CPP) retirement pension amount for new beneficiaries as of October 2017 is $641.63 per month. Note: The amount of your pension will depend on how much and for how long you have contributed to the CPP and on your age when you want your pension to start. If you take it before age 65, your pension will be reduced, by up to 36% at age 60. If you take it after age 65, your pension may be larger, by up to 42% at age 70.

2Source: Employment and Social Development Canada. Maximum monthly Old Age Security (OAS) pension for October 2017 is $586.66 per month, regardless of your marital status. If your individual net income was above $74,788 for 2017, your monthly OAS pension payment amount will be reduced, beginning in July 2018, to recover the repayment amount owed. If your income is $121,314 or above, your entire OAS pension will be clawed back.

3Average federal / provincial rate. Source: Canada Revenue Agency. This is a hypothetical example to be used for illustrative purposes only.

4Excludes taxes to pay upon withdrawing the money from the RRSP (e.g., RRIF).

The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.

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