Many people are feeling the pinch of increasing food costs and rising mortgage rates. It may seem prudent to curtail saving and focus simply on paying the bills. However, every household budget should include a monthly savings plan to ensure a comfortable retirement once you leave the workforce. 

In today’s unsettled financial climate, Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) are the perfect vehicles to park a portion of your monthly income. Why? First, RRSPs reduce your taxable income. The money you contribute to an RRSP is sheltered from taxes until you start withdrawing the money years from now. By reducing your annual income through RRSP investments, this translates into a larger tax return. You could use this extra money to treat yourself and the family to a holiday getaway, or you might reinvest the refund in your RRSP plan. This will further increase your RRSP contribution — upping your tax return even more the following year. 

To make RRSP contributions stress-free, make small regular payments every payday or once a month. Your savings will grow almost effortlessly.

Once you withdraw from your RRSP, the money is taxed. However, this would normally only occur during retirement, when income is significantly reduced, placing individuals in a lower tax bracket. 

Ever since interest rates began rising in early 2022, we’ve tended to look at these increases as the bogeyman. But with RRSP investments, this works in your favour. Higher interest rates mean you make more on the funds you are setting aside. 

For young people who earn moderate to high salaries, the tax savings from RRSPs can be an effective savings tool for growing a down payment on a house. Not only is there the tax break from RRSP contributions, but programs like the Home Buyer’s Plan allow an RRSP withdrawal of up to $35,000 to put towards the purchase of a first home.

What’s the difference between an RRSP and TFSA? A TFSA is the ideal savings vehicle for lower-income households or those who don’t benefit from an employer’s matching program on group retirement contributions. And while you can’t deduct TFSA contributions from your income as you can with an RRSP, it is still an ideal way to save money, especially for households that may struggle with rising mortgage costs and inflation. If costs increase to unmanageable levels, a TFSA can provide a lifeline and help prevent incurring additional debt through loans, credit cards or lines of credit. TFSA investments grow tax-free within the account, which means you’re not taxed on the TFSA growth even if you withdraw funds. 

Your North Peace Savings & Credit Union (NPSCU) adviser will show you the various investment options available for both RRSPs and TFSAs. Your portfolio can include a range of savings and term deposits, including mutual funds, securities, bonds and stocks. The NPSCU adviser can adapt your RRSP investments to match any changes in risk tolerance that may come from changes to income or age, as you near retirement.

Saving for retirement is one of the most important life decisions you will make, and RRSPs and TFSAs are key to helping you secure a comfortable future. Consult with a NPSCU adviser for expert advice about how to plan for your golden years. 

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