It's Never too Early to Start Saving for Retirement
3 min readBrought to you by Sound Choices - AGF Education for Investors and Advisors
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 2022) | |
| Average Canada Pension Plan1 | $8,854.56 |
| Maximum Old Age Security2 | $8,214.00 |
| = Total annual income | $17,068.56 |
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 |
| Immediate cost of contribution | $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 AGF.com/RRSP.
1Source: https://www.canada.ca/en/services/benefits/publicpensions/cpp/payment-amounts.html, sourced January 24, 2023. Average Canada Pension Plan (CPP) retirement pension amount for new beneficiaries as of October 2022 is $737.88 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. If you take it after age 65, your pension may be larger.
2Source: https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html, sourced January 24, 2023. Maximum monthly Old Age Security (OAS) pension for October 2022 is $684.50 per month for age 65 to 74, regardless of your marital status. If your individual net income was above $81,761 for 2022, your monthly OAS pension payment amount will be reduced. If your income is $134,626 or above for ages 65 to 74, your entire OAS pension will be clawed back.
3This is a hypothetical example to be used for illustrative purposes only. For current Canadian income tax rates for individuals, visit https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html ..
Commissions, trailing commissions, management fees and expenses all may be associated with investment fund investments. Please read the prospectus before investing. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.
The information contained in this document is designed to provide you with general information and is not intended to be tax advice applicable to the circumstances of the investor. Investors should consult their investment professionals and tax advisors prior to implementing any changes to their investment strategies.
The contents of this website 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.
This document may contain links to third-party websites. The parties who own, maintain or control third-party websites are solely responsible for their content, and AGF assumes no responsibility for such content. Links to third-party websites are provided for convenience only and are not to be construed as an endorsement or recommendation of the products, services, advice or information that may be available on them.
AGF Investments is a group of wholly owned subsidiaries of AGF and includes AGF Investments Inc., AGF Investments America Inc., AGF Investments LLC, and AGF International Advisors Company Limited. The term AGF Investments may refer to one or more of the direct or indirect subsidiaries of AGF or to all of them jointly. This term is used for convenience and does not precisely describe any of the separate companies, each of which manages its own affairs.
® The “AGF” logo and all associated trademarks are registered trademarks of AGF Management Limited and used under licence.
RO 2699628
January 31, 2023