Preparing a family budget with limited funds is difficult. Fixed expenses such as rent, electricity, and water are the first bills to be paid. Variable expenses such as savings account for retirement are often neglected. Too often young families' expenses exceeds their incomes. However, a healthy financial portfolio consists of a retirement saving account.
RRSP is just one option to invest for the future. It is a savings plan that is sponsored by the government to encourage Canadians to financially prepare for their golden years.
RRSP Basics
RRSP is a Canadian registered retirement savings plan. It is a tax sheltered savings account similar to the registered education savings plan sponsored by the Canadian government. The government provides incentives to encourage Canadians to save for their retirement.
Working Canadians aged 18 to 71 can contribute to an RRSP account. The benefit of contributing is a reduction in the annual income tax for the contribution year. As well, the interest earned is only taxed when the money is withdrawn. In addition, often Canadians are earning a lower income during retirement, resulting in lower taxes when the money is withdrawn from the account.
Contributing to an RRSP
Contributions to an RRSP account can be made at most financial institutions such as banks, credit unions, trusts, and insurance companies. Some financial institutions deduct a yearly fee while others do not. It is best to investigate the different providers in the local area.
Once the provider is selected, a contributor to the plan can set up regularly scheduled payments into his or her RRSP or pay a lump sum once a year. The payment plan is dependent on the family's individual needs. The best option for families to help budget is to consider the RRSP a monthly bill payment.
Another option is to set up an account with a bank such as the Royal Bank of Canada that allows customers to contribute online at any time. In addition to paying a fixed amount monthly, they can also contribute when they have a few extra dollars each week. An extra ten or one hundred dollars a month quickly adds up. Investing extra money gives the family the advantage of giving when they have extra money in the budget and not to contribute when finances are tight.
Saving for retirement is an important variable in the family budget. Families should contribute to an RRSP account as it reduces their annual income taxes and prepares them for the future. The best tip is to start building a retirement portfolio today.
Debbie DeSpirt - Debbie DeSpirt is an Elementary Teacher for the York Catholic District School Board in Ontario, Canada. Her post secondary education ...
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