Making the Most of Your RRSP While You're Waiting for Retirement

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Originally published on Linked In April 5, 2016. Photo from


Contributing to a Registered Retirement Savings Plan (RRSP) may not be the first thing on a young adult’s mind when they have other demands on their cash besides retirement.


However, in recent years there have been programs created to help people use their RRSP to achieve significant financial goals without triggering taxes on the withdrawal and still getting the tax deduction for contributions. Consider:


Lifelong Learning Plan (LLP)


The LLP allows withdrawals up to $10,000 annually from RRSPs tax-free up to a maximum of $20,000 to go toward qualifying education. This money is treated as a loan from your RRSP that will need to be pay back or it gets taxed. After 5 years a minimum of 1/10 of the outstanding amount is to be paid back each year for 10 years.


For instance: a withdrawal in 2010 of $7000 means $700 (1/10 x $7000) would start being paid back in 2015 if the participant doesn’t elect to start paying it back sooner.


You must be a full-time student, or a part-time student if you suffer from a disability and enrolled in a qualifying program to participate in the LLP.


First Time Home Buyers’ Plan (HBP)


The HBP works a lot like the LLP – your tax free withdrawal is a loan from your RRSP that can be repaid over several years.


The maximum withdrawal is $25,000 with repayment starting the year after you purchased the home. The payback period is 15 years with a minimum of 1/15 of the withdrawal amount repaid each year.


There are a few qualifications that have to be met in order to use the HBP, primarily that the purchaser must not have previously owned a home. There are exceptions for marriage breakdowns.


** It should be noted that the contributions used for the LLP and the HBP must be held in the RRSP for at least 90 days before withdrawal.




While retirement may not be at the forefront of a newly employed 25 year old’s list of priorities, starting to save early for retirement and the power of compounding help immensely in the long run.


Consider for a moment you graduate and start your first job making $50,000 per year at the age of 25. If you save $200 every month (only 5% of annual income while saving around $700 in income taxes) and invest in a RRSP making 5% every year, you would end up with an RRSP worth approximately $297,000 at age 65.


If you wait to start at 45, you would have to invest approximately $730 monthly making 5% annually in a RRSP, to achieve a similar amount at 65.


You end up with a very similar amounts in your RRSP, but starting at 25 years old means you only contribute $96,000 versus the $175,200 for the person who starts at 45. Think of it this way, by starting saving for retirement at 25, you have more money to fund family vacations during your 40s and 50s.


As you can see, RRSPs can do much more than fund retirement. The LLP and HBP also help you improve your education and buy your first home if you start contributing to your RRSP sooner than later.


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