RRSP EXPLAINED | INVESTING TAX FREE | COMPOUND INTEREST | RETIREMENT PLAN

#rrspCanada
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RRSP account is exclusive to Canadians and one of the most important wealth-building tools at our disposal.

RRSP stands “registered retirement savings plan.” It's by far the best way to save for retirement but also save you a ton of money on taxes in the short term.
The Government Of Canada came out with this account in 1957 to motivate  Canadians to save for retirement. This is why its a “registered “account”, it's registered with the Government Of Canada and overseen by the CRA (Canadian Revenue Agency)

Keep in mind there are limits to how much you can deposit in an RRSP account, but more on that later.
Your Annual Income

Throughout the year, we pay taxes to the government on every paycheck, right?
We don't have a choice. And its a lot of money!
Canada has a significant focus on socialist policies for the greater good, like free healthcare, paid parental leave, unemployment protections, etc. Even though these are great causes and we all have to do our part, it still stings every time you look at your paycheck am I right?
So lets the full advantage of this RRSP tool.

Contributing to RRSP Account What does that look like?

Example: You make a salary of 80k.
After all the taxes and employment insurance, its actually about 45-48k. So you pretty much paid about 35k in taxes.
What would happen though if you contribute 10k to an RRSP account that year?
This means that you officially (in the government’s view) only made a salary of 70k, not 80k.
The RRSP contribution you make reduces your gross salary, dollar for dollar.

So what does this mean? It means the government has now overtaxed you.

You made “70k” but paid taxes as if you were making 80k, so the government owes you tax$ back, hence a tax refund. The more you contribute in a given year, the lower your “official” salary is and the more the money you get back. Sounds great right? Well, that’s because it is!
 
You part with some money now by contributing to your RRSP for retirement and you won't be able to use it until then but at least it's still your money, it's as if you pay yourself!
Not only that, but it will also grow exponentially throughout the years with compound interest.

RRSP Contribution Limits, How do those work?

Every year that you work, your contribution limit increases, depending on how much you make.
if you don’t use that amount in a given year, it actually carries over to the next year!
Check out the example in the video

How to figure out what is our RRSP limit?

The easiest way is to check the last annual Income Tax statement summary you get from the government. Typically you get the papers a couple of weeks or a month after you file your taxes for the year. A second way is to log in to the CRA or Canadian Revenue Agency website.
CRA Login:
https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/account-individuals.html

Great! I want to Retire in Comfort. If I Contribute to RRSP, What Will The Money Be Invested In?

Let’s think about this logically, this money won’t be used until you retire right?
That's many years or even decades away. The logical thing is to invest it in stocks and not bonds or fixed income. Its well documented that in the long term stocks always outperform fixed income, or safer investment products like bonds, so its better not to be too conservative here.
Yes, it will fluctuate, but we aren't concerned because we only care about growth accumulated over time. The value of your money needs to grow with inflation, keeping your money in a 2% savings account just doesn't cut it anymore.

Awesome, So Where Can I Open an RRSP Account and start contributing!

1. You may have options to contribute to an RRSP with your work.
2. Any Bank
3. Wealth Management Companies (Liberty55 etc.).
My suggestion is and you can already guess... manage it yourself and have the account with the same institution you do your banking with. It's more efficient as everything is in one place.
Personally, I have my RRSP account with the same institution I do my banking and where I have my TFSA and Cash Brokerage account, this way it's all centralized.
If you're a Canadian and don't already have an RRSP account I hope these videos give you more knowledge on the subject and encourages you to open one and start saving for your golden age.

If you are completely new to investing. Check out my 5 part beginner's playlist.

Also in another video, I reveal my own personal RRSP account were you ill show to you my criteria as well as my investments to give you some ideas on what to invest in.
Thanks for watching!

Links:
Compound Interest calculator:
Tax Canada Calculator:
https://www.getsmarteraboutmoney.ca/calculators/compound-interest-calculator/

RRSP home buyers plan:
https://www.wealthsimple.com/en-ca/learn/home-buyers-plan

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