Finance Press - Daily financial articles from world

When someone is considering retirement, they generally do not think about everything that this would entail. Most people are not aware that only a small portion of their income for retirement will come from the government. This is usually only about 30 percent. Another 30 percent would come from the employee pension plan but most individuals do not have a pension plan. In this case, 70 percent of retirement income would have to come from the individual's investments. Which is why is in necessary to understand how a registered retirement savings plan (RRSP) actually works.

When someone is considering retirement, they generally do not think about everything that this would entail. Most people are not aware that only a small portion of their income for retirement will come from the government. This is usually only about 30 percent. Another 30 percent would come from the employee pension plan but most individuals do not have a pension plan. In this case, 70 percent of retirement income would have to come from the individual's investments. Which is why is in necessary to understand how a registered retirement savings plan (RRSP) actually works.

The first detail is reducing the amount of income tax that is withheld. This done by contributing money to the RRSP through the employer's payroll deduction option. This allows the individual to pay less income tax throughout the year instead of overpaying and getting a tax refund.

It is very important to know when a yearly contribution can be made to a RRSP. Most people are not aware that this can be done on the first day of the year, any year. Most wait until they have been informed of what their annual contribution limit is. Typically this information is not provided until the second week of February or first week of March.

Unfortunately, many people do not realize that this is not how the system works. When a contribution is made that actually exceeds the yearly limit, the fund will be returned to the individual. It is also important to know that the money does not have to be returned. It can be used as part of a contribution for a future year.

Knowing what the eligible investments options for a RRSP is also very important. There are many different options. These would include shares on the stock exchange, government and corporate bonds, and investment certificates. People can also invest their RRSP funds into Canadian based mutual funds. They just have to meet government guidelines.

Lastly, one of the most important things to know regarding a registered retirement savings plan is that a spouse can also contribute to the plan as long as the yearly contribution limit is not exceeded. Many people are not aware that when it is time to convert the RRSP into a maturity option, they can play their RRSP into their spouse's name, as long as they are younger than sixty-nine.

If a registered retirement savings plan is an option, the above details should be considered when making the final decision. With this information, an individual should be able to make wise investment decisions. Although it may seem a little early to be thinking about retirement, the fact of the matter is that it is never too early to start planning for a comfortable retirement.

< Prev		Next >