Personal Investment Plans

Registered Retirement Savings Plan (RRSP)

A Registered Retirement Savings Plan is, as the name suggests, a plan that is registered with the Canada Revenue Agency (formerly known as the Canada Customs and Revenue Agency, or Revenue Canada before that) to help Canadians to save for retirement. But although practically everyone has heard of RRSPs, they are greatly misunderstood.

Tax deferral

Think of an RRSP as a special kind of tax-free zone for long-term savings. It’s a way of diverting a portion of your before-tax income into a plan where it can stay and accumulate earnings without paying income tax until you make withdrawals later – presumably
in retirement when you are in an equal or lower tax bracket. You can have more than one RRSP, though it’s better to have fewer for ease of management and to minimize fees.

Put time on your side

Once in a plan your assets grow tax-sheltered and can grow much more quickly. For example, if you invested money into an RRSP and an equal amount outside an RRSP in an interest paying investment, your RRSP would double in almost half the time if you were in the top marginal tax bracket. We can help you invest in a wide variety of RRSP options including both guaranteed- and variable-rate products.

As to what you should invest in, consult one of our financial advisors. If you don’t have a company pension plan, you may want to be more conservative. If you’re not far from retirement, you may also want to be more conservative. The choice is yours and we can work with whatever level of risk tolerance makes sense for you.

Consistency, consistency, consistency

We advise people to automatically “pay yourself first”, before other bills and commitments. It’s just easier to put $200 a month into an RRSP than to come up with $2,400 once a year.

Monthly saving also allows you to dollar-cost-average your purchases – the same $200 will buy more units of an investment fund when unit prices are low, and fewer units when prices are high. It’s a way of smoothing out market fluctuations over the long term, and less likely to be caught out by either market corrections or missed buying opportunities.

Alternatively, if you want to make an RRSP contribution, but your income varies, or you don’t have cash, we can arrange an RRSP loan, which might make sense as a sort of “forced saving” – talk to your Orr representative to see if the numbers make sense.

Since contributions are income-deductible, they’ll be more valuable to people with higher taxable incomes. For example, if your annual income is $50,000 and you contribute $5,000 to an RRSP, the year’s income tax would apply to $45,000. Since your employer is obliged to deduct and remit taxes on your behalf at the $50,000 gross income level (with some exceptions, such as company-sponsored RRSPs) this typically results in a rebate at tax time. The higher your income, the larger your refund.

Higher and lower taxes

You can continue to contribute to an RRSP until the end of the year in which you turn 71, provided you still have earned income. At that time, you must begin to withdraw your RRSP in the form of an income. There are various choices for this and we’d be happy to help you determine which is the most appropriate for you

Registered Retirement Income Fund (RRIF)

When retirement comes and it’s time to start putting your retirement savings into action, you don’t want a big taxable chunk of RRSP money to suddenly get taxed at once – probably at or near the maximum tax bracket.

To ease your savings into retirement, a Registered Retirement Income Fund is an investment vehicle that receives your RRSP funds and keeps them in the income-tax-deferred zone until you withdraw money as retirement income. Your RRIF continues to accumulate tax-deferred earnings on the unused balance.

Tax-Free Savings Account (TFSA)

The TFSA is a savings plan for individuals 18 years and older. It’s sort of a reverse-RRSP. You contribute after-tax dollars (contributions are not tax-deferred, like RRSP contributions), but they can grow untaxed while inside the plan, and they don’t get taxed when withdrawn – so your investment interest or capital gains are tax-free. This is a great choice for people currently in a lower tax bracket.

There are a number of different investment options eligible in a TFSA, and as qualified financial planners, we can comb the market for your best investment options.

TFSAs were introduced in 2009 with a contribution limit of $5,000 per year, which was raised to $5,500 in 2016. You can also use up your unused limits from previous years, so if you’re just starting, you now have a $57,500 limit to work with.

You can also use the TFSA as an income splitting strategy because a higher earning spouse can contribute to a lower-earning spouse’s plan.

Registered Education Savings Plan (RESP)

RESPs help families save for their children’s post-secondary education, while receiving grants from the government to assist the funding. A Registered Education Savings Plan is a savings vehicle that allows money to be deposited for a child’s post-secondary education and grow tax-free until he or she enrols.

Eligible students must be a resident of Canada, have a Social Insurance Number and be under 18 years of age.

RESP contributions up to $2,500 per year per beneficiary are eligible for a 20% Canada Education Savings Grant, up to a lifetime maximum of $7,200 per beneficiary. An additional grant (Canada Learning Bond) is available for low- and middle-income families. For a $100 contribution to an RESP, the Canadian government will provide a $20 grant to be paid to the RESP.

When the student-to-be enrolls at a qualifying university or college program, the funds can start being withdrawn. The funds can go towards the student’s tuition, books, accommodation and transportation.

Registered Disability Savings Plan (RDSP)

The Registered Disability Savings Plan was introduced in 2008 – it is a savings plan designed to help build long-term financial security for disabled persons. You are eligible for the RDSP if you:

• are eligible to receive the disability tax credit
• have a valid Social Insurance Number
• are a resident of Canada under the age of 60.

The RDSP makes it easy to accumulate an investment portfolio by providing additional savings through grants and bonds – it also offers tax deferred investment growth like an RRSP. Canadian Disability Savings Grants are matching grants up to 300% depending on the amount contributed and family net income, to a maximum. Bonds are contributions on the government’s behalf for lower income families.

Your Orr representative can tell you more about this great government program

Provincially Speaking: the LIF, LIRA and LRIF

Because income tax is mostly a federal income tax matter, and pensions are provincially regulated, the Province of Ontario has designed a few registered options to give Ontarian pensioners more options for their retirement.

Life Income Fund (LIF)

For those who value consistency, a Life Income Fund is an investment vehicle that receives money from a pension and pays an adjustable amount of retirement income according to prescribed annuity calculations (based on factors such as life expectancy). Payments must be at least the minimum stated in the federal Income Tax Act and the maximum amount stated in the provincial Pension Benefits Act. For instance, there is a requirement to convert all LIFs into a life annuity at age 80.

Locked-In Retirement Account (LIRA)

For those who like to be more self-determined, a Locked-In Retirement Account is an investment vehicle where you can transfer a previous pension plan to be invested on your own terms. A LIRA is like an RRSP that is governed by provincial pension regulations to hold locked-in pension contributions until they are used for retirement.

Typically when you leave a job with a pension, you have two options:

• leave the funds in the pension plan
• transfer the funds to a LIRA where you have investment choices more suitable for you.

Within a LIRA you can set your own course with greater choice in types of investment vehicles, allowing you to choose according to your financial goals and objectives.

Locked-In Retirement Income Fund (LRIF)

A Locked-in Retirement Income Fund (LRIF) is like a RRIF (explained above) governed by provincial pension rules. When it’s time to retire, it receives your LIRA funds and pays an adjustable amount of retirement income based on the investment income earned by the LRIF. There is no requirement to convert your LRIF to an annuity at age 80, and the method of calculating the maximum payment is different from other plans.

As insurance and annuity specialists, Orr Insurance and Investment Advisors are experts who can walk you through your pension plan options.

Registered Pension Plan (RPP)

A Registered Pension Plan is an arrangement by an employer or a union to provide monthly retirement income. Under the federal Income Tax Act, employer and employee contributions and investment earnings are tax-exempt until the benefits are paid to the employee.

Individual Pension Plan (IPP)

In July 2012, an Individual Pension Plan was introduced in Ontario. The plan would use withdrawal rules similar to Registered Retirement Income Funds (RRIFs). There is an annual minimum amount that must be withdrawn from an IPP.

Individual Pension Plan (IPP)

If you were to retire this year (2019) at age 65, you would get your eligible CPP payments to a maximum of $1,154.58 per month.

If you decide to take your pension before the age of 65, your monthly pension benefit reduces according to the number of months prior to reaching age 65. For example, if you take your pension now at age 60 (60 months early), the reduction would be 0.6% per month, to the maximum reduction of 36%.

If you start your pension benefit amount after age 65, the CPP increases your pension by 0.7% for each month you wait, up to age 70 and a maximum of 42%.

If you start your pension after age 70, there will be no financial benefit, as CPP stops increasing your benefit at age 70.

Old Age Security (OAS)

The Old Age Security program provides low income seniors age 65 or older, with a monthly pension amount. You must apply to receive the benefit and must meet the eligible requirements in order to be entitled to OAS.