How much should I have in my RRSP?

A primer on RRSPs

An RRSP is a nest-egg account that you (or, in the case of a spousal RRSP, your spouse or common-law partner) can contribute to and use to buy investments. You earn new RRSP room based on a percentage of your earned income, and contributions reduce your taxable income for the year. You can check your RRSP room on your notice of assessment to ensure you don’t over-contribute. If you don’t max out your RRSP each year, the unused portion of your contribution room rolls over into subsequent tax years. You can hold cold, hard cash in your RRSP as well as qualified investments like ETFs, mutual funds, GICS, stocks and bonds. (Here’s how to determine if your savings should be invested in an RRSP or TFSA.)

When you retire, or by no later than December 31 of the year you turn 71, you generally convert your RRSP to a registered retirement income fund (RRIF) from which you draw funds. An RRSP can also be used to purchase an annuity prior to turning 72, but RRIFs are much more common. The savings you have in your RRIF are tax-deferred until they are paid out, at which point they are taxed. More on that below.

Why use an RRSP to save for retirement? 

When you save funds in your RRSP, you’re not only preparing for your future. Your present self can also benefit greatly, since those contributions are tax-deferred, and contributions generate a tax refund. If, like most Canadians, your tax bracket is lower upon retirement, you will likely benefit by making RRSP contributions.

How to maximize your RRSP contribution

When it comes to getting the most out of your RRSP, timing is everything. “You should time the use of the deduction for when you are in a high tax bracket,” Forward advises, adding that you can save deductions made while you’re in a lower bracket and claim them later when you need them. Like RRSP room, undeducted RRSP contributions can be carried forward. The second major benefit of RRSPs, she says, is that “the investments grow tax-sheltered while being held in the plan.”

How much do I need in my RRSP to retire?

Determining your goal amount is highly individual and will depend on a number of factors. Forward recommends that you begin by considering the following variables: 

• The age you want to retire
• Your savings rate
• Your workplace’s RRSP or pension matching program
• Your access to a spousal RRSP 

Beyond that, identifying your future needs is the priority. “The challenge is anticipating how your spending needs will change during your retirement years,” says Forward. Significant expenses like a mortgage may be paid off by retirement and you can likely depend on a significantly lower tax bill. On the other hand, she says, you might plan on completing home renovations or travelling in retirement—activities that you’ll need to budget for. “Everyone is different, but many retirees I speak to find they are spending 60% to 70% of their current income in retirement.”

Account for other retirement income sources, too. “Once you’ve established your target spending needs and retirement age, you will need an estimate of your guaranteed income sources,” Forward says. These sources might include Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) and Old Age Security (OAS). These can be confirmed with Service Canada (CPP/OAS) or Retraite Québec (QPP).

How much do I need in my RRSP by age?

Once you know how much money you’ll need in retirement, Forward says, you can work backwards to signpost your savings goals. As an example, let’s say you’ve set a retirement target of $40,000 pre-tax income annually and you wish to retire at 65. If your pension and CPP/OAS contributes $20,000 (close to the maximum), you will need an additional $20,000 annually to meet that goal. If you live to be 95 years old, you might need a total of $600,000. Compound interest will help you get there. Let’s take a closer look.

To make your RRSP projections, use an online calculator or even the old-school method. Interest rates fluctuate, but a 4% rate of return on your RRSPs after fees is a conservative estimate, according to Forward. 

How much should I contribute to my RRSPs in my 20s?

If you’re in your 20s, you’re probably just starting out in your career. You may have a modest salary and other debts, like student loans, to pay off. “The biggest asset you have right now is time,” Forward says. She advocates for establishing a regular contribution schedule, however small, and taking full advantage of access you might have to any employer pension-matching programs. An individual who deposits $400 monthly starting at age 20 will have more than $600,000 in their RRSP by the time they’re 65 (assuming the 4% rate of return). Those who deposit the same total annually ($4,800) as a lump-sum contribution will also reach their goal, though they will accumulate less in interest.

How much should I contribute to my RRSP in my 30s and 40s?

Many Canadians in their 30s and 40s face new demands on their disposable income. “While your gross income might be rising,” Forward notes, “you likely have a mortgage, daycare costs and less time on your hands to dedicate to managing your finances.” Still, your tax bracket is probably increasing at this point, and you still have time and compounding on your side. By the end of your 40s, though, you’re reaching the end of your peak spending years. “Make sure you have started saving for retirement in some form.”

With a starting point of $275,000 in your RRSP at age 50 and monthly deposits of $500, you’ll make your RRSP goal. If you’ve not yet put money in your RRSP by the end of your 40s, it will take significant contributions to make your goal.

How much should I contribute to my RRSP in my 50s, 60s and beyond?

Your RRSP contribution age limit is 71 (more specifically, you can contribute until December 31 of that year). That is, unless you have a younger spouse. You can make contributions to a spousal RRSP owned by your spouse and based on your contribution room until December 31 of the year they turn 71.

When you turn 50, you have only 15 years left to make your RRSP goal—that is, if you intend on retiring at 65. “Savings tend to accelerate in this period as more disposable income is available, but your time horizon is much shorter now,” Forward says.

After age 60, you’re focused on the next phase of your life: retirement. “It’s time to start winding down your career, choose a firm retirement date and start planning an optimal withdrawal strategy,” she says, adding that your target is to have reached 100% of your goal by this age.

Saving for your retirement with an RRSP is an individual process with many variables to consider. “It is important to note that financial planning is an ongoing process,” Forward says. “Your income, spending and savings rates will change through time and there is value in constantly setting savings targets, monitoring your performance and identifying opportunities to reduce tax, so that you can build your retirement nest egg as efficiently as possible.” With planning and forethought, you can make the most of your RRSP investments—at any age.

Read more about investing:

• Know your TFSA contribution limit
• Earning, saving and spending money in Canada: A guide for new immigrants
• How might inflation impact your retirement plans?
• Financial planning in your 70s

About Keph Senett

Keph Senett writes about personal finance through a community-building lens. She seeks to make clear and actionable knowledge available to everyone.