The advantages of making early RRSP contributions

RRSPs are easy to understand: they put time on your side. Your savings grow tax-free, which improves your return. In addition, your tax rate is generally lower at retirement than during your working years.

The longer your money stays in this tax shelter, the greater your retirement capital. That's why it's important to start contributing as early as possible.

If you're a recent graduate venturing into the job market or if you have young kids, this isn't always easy. You probably have a tight budget, and retirement may seem far off. However, the example below shows just how advantageous early contributions can be.

Annual contribution Total investment Value at age 551
$1,500/year from age 25 to 55 $45,000 $118,587
$3,000/year from age 40 to 55 $45,000 $69,828

The earlier in the year that you contribute, the more you'll earn. Always remember: time is your best ally!

Tools and tips

Unused RRSP contribution room

If you haven't been contributing your maximum, you can catch up by using your unused contribution room in subsequent years.

Read tip - Using your unused contribution room

An RRSP loan can help you increase your contribution

Borrowing $10,000 for your RRSP could pay off in a big way.

Read tip - An RRSP loan can help you increase your contribution

Couples can pay less tax

The higher-earner can contribute to his or her spouse's registered retirement savings plan (RRSP).

Read tip - Contributing to your spouse's RRSP

HBP: Using your RRSP to buy home

How to withdraw part or all of your RRSPs without paying income taxes.

Read tip - Withdrawing from your RRSP without penalty to buy a property

Should you put your savings in an RRSP or a TFSA?

It all depends on what you want to do with your money..

Read tip - Comparing TFSAs and RRSPs

  1. Based on a 6% compound return assumption for a balanced portfolio (45% in fixed income and 55% in equity) – return based on 2011 Projection Assumption Standards of Institut québécois de planification financière.