Unlock Your Retirement Riches
If you're nearing retirement age, you might wonder if there's any point in topping up your RRSP before you turn 71. At Tune, the answer is a resounding "Heck yes!" In this blog post, we'll explore some benefits of topping up your RRSP before you hit that age limit.
Tax Benefits
Contributions to your RRSP reduce the amount of income tax you have to pay. This can be particularly advantageous if you're in a higher tax bracket. Contributing more to your RRSP can lower your taxable income, potentially pushing you down into a lower tax bracket.
Contributing to your RRSP and taking advantage of the tax deduction can lower your taxable income and overall tax bill.
Example: Barney, 64 years old, still works because he loves what he does. He makes a salary of $150,00/ year and has $100,000 of accumulated RRSP room. We recommended he split the $100,000 deduction over two years - $50,000 yearly. This saved him approx. $20,000 per year in taxes over the two years; that's a $40,000 refund. Sweet!
2. Continued Growth
If you're like many Canadians, you may have started contributing to your RRSP early in your career, but you might not have been able to maximize your contributions due to other financial priorities. By topping up your RRSP later in life, you can ensure that your retirement savings continue to grow.
Remember, your RRSP investments are tax-sheltered, meaning you don't have to pay taxes on any growth or investment income earned within the account. By topping up your RRSP before you turn 71, you can ensure that your investments have more time to grow and potentially make more money for your retirement.
3. Income in Retirement
One potential concern for retirees is generating enough income to support their lifestyle. It seems like a no-brainer, but by topping up your RRSP before you turn 71, you ensure that you have more retirement income. When you turn 71, you'll have to convert your RRSP into a Registered Retirement Income Fund (RRIF), and you'll be required to make minimum withdrawals each year. By topping up your RRSP, you will increase the income from your RRIF.
In conclusion, there are several benefits to topping up your RRSP before you sail off into retirement. By doing so, you can take advantage of tax benefits, ensure the continued growth of your hard earned savings, generate more income in your golden years, and potentially leave a larger legacy for your loved ones. Talk to a financial advisor to discuss your options.
If you don't have a CFP, we love helping people write their money story. Book a complimentary appointment here to begin the conversation.
