Retirement planning is fundamentally about replacing your paycheck when you stop working. In Canada, the Registered Retirement Savings Plan (RRSP) is a primary vehicle to achieve this.
The Tax Advantage
Contributions to an RRSP are tax-deductible, meaning they reduce your taxable income for the year. The investments grow tax-deferred until you withdraw the funds in retirement. Since most people are in a lower tax bracket during retirement, this strategy results in significant absolute tax savings.
Converting to a RRIF
By the end of the year you turn 71, your RRSP must be converted into a Registered Retirement Income Fund (RRIF) or an annuity. Planning this transition is vital to managing your ongoing tax liability and ensuring a steady stream of income throughout your golden years.