How much should you contribute to your RRSP?
When you contribute to an RRSP, you’re investing towards a better quality of life for your future self. So if you have money to contribute, it’s almost always a good idea to do so.
Generally speaking, you should aim to contribute at least 10% of your gross income each year to your retirement savings.
Start contributing in your early 20s, and that 10% per year could add up to a sizeable savings and a comfortable retirement. Start later in life — say, your late 30s — and 10% a year may not cut it.
Find the right number with a financial plan
Keep in mind, these numbers are just general guidelines. Ultimately, the only way to know whether you’re contributing enough is to build a financial plan that accounts for when you plan to retire, all of the different income sources and savings you expect to have, and how much you plan to spend each year. With that information, you can work backwards and figure out whether you’re saving too much or too little.
Who can contribute to an RRSP?
You can contribute to an RRSP if you:
Have earned income
Have a social insurance number
Filed a tax return
Have RRSP contribution room available
Are under 71. The end of the year that you turn 71 is your last opportunity to contribute.
Figuring out how much to contribute to your RRSP is important. Do it right, and you maximize your tax savings now, while setting yourself up for a good income after retirement. Do it wrong, and you could find yourself paying more taxes than you have to.
Author: The Link Between