Administrators > Sources of retirement income > RRSPs and your personal savings

RRSPs and your personal savings

Your sources of retirement income

Your pension from the CAAT Plan

Your government pensions

Some RRSP income options

Working in retirement

Retirement planning

Commuted Value and Pension Estimator

10 things to think about if you're retiring soon

Income tax

Member Handbook -
Income tax considerations

Administration Manual -
Income Tax

Your personal savings are an important third component of your total retirement income. As a Plan Member, you can expect to receive your CAAT Plan pension as well as your government benefits when you retire. It's important, however, not to overlook the role your RRSPs and other savings vehicles will play in your total retirement income plan.

Your personal retirement savings plan can be seen as a two-step process. The first step is building up your personal savings - the investment decisions you make will ultimately determine how much income you will have when you retire. The second step involves paying yourself out of the funds you have accumulated. This stage is outlined in the article titled Some RRSP income options.

RRSPs and Income Tax

Registered Retirement Savings Plans (RRSPs) provide you with the opportunity to grow your savings tax-free for retirement. Each year, you can claim an income tax deduction for the entire amount you have contributed to your RRSP, up to your limit. The interest you earn in your RRSP is also tax-sheltered - you only pay taxes on the amount that you withdraw. Therefore, not only can you save on your taxes in the years you contribute, but you may also be taxed at a lower rate when you withdraw the funds after you stop working.

Depending on the source of your funds, the RRSP you open can be locked-in or not locked-in. If you transfer funds to an RRSP from a registered pension plan or other locked-in savings plan, that locked-in RRSP can only be used as retirement income. On the other hand, if you open an RRSP account at a bank or financial institution using cash, savings bonds or other liquid assets, this RRSP is not locked-in and funds can be withdrawn and used before retirement if needed. The amount taken out, however is considered taxable income in the year it's withdrawn, unless it is used to purchase a home (under the Home Buyer's Plan), or to pay for your education (under the Lifelong Learning Plan). Information on these programs can be found on the Canada Revenue Agency's website.

Your RRSP and your CAAT Pension

As a registered pension plan member, if you also contribute to an RRSP, you benefit from tax sheltering on both plans. Your pension plan and RRSP contributions are not subject to income tax and your earnings in them are tax-sheltered. The federal government implemented the Pension Adjustment (PA) so that all taxpayers have access to comparable levels of tax sheltering, even if they don't belong to a pension plan. Your PA is the deemed value of the benefit you earned in your pension plan during the year. Your RRSP contribution room for the following year is reduced by the value of your PA.

Each year, the RRSP contribution limit is set by the CRA. The limit for pension plan members is reduced by the amount of your PA, to reflect the retirement savings from in the Plan. If you contribute less than your allowance, the balance (your unused contribution room) is carried forward and added to your subsequent years' limits.

What other forms of savings are available?

There are a number of ways to save for retirement besides RRSPs. Investments such as mutual funds, GICs and stocks do not receive the same favourable tax treatment as when you invest in them outside of a registered account such as your RRSP. They can, however, round out your savings for retirement as well as other goals. Life insurance plans that allow you to cash in some or all of your policy can be a source of income when you stop working.

How you manage your personal investments will depend on your individual situation. Generally, the more investment risk you are prepared to take, the higher your potential rate of return (and, conversely, the higher loss you are capable of experiencing). Novice investors or those approaching retirement age are normally cautioned to invest conservatively. In either case, it's prudent to speak to an independent financial consultant for investment advice.

The earlier you begin contributing to your personal savings, the longer they will have time to accumulate interest and grow, but it's never too late to put money aside for retirement. The Canada Revenue Agency website provides detailed information on RRSPs and income tax initiatives. It also offers an interactive retirement income calculator, which shows the effects your RRSP contributions can have on your total retirement income.

Your pension from the CAAT Plan

Your government pensions

Some RRSP income options

Working in retirement

December 2007