Unused RRSPs – the numbers are staggering

The numbers are staggering. More than 24 million Canadians have unused Registered Retirement Savings Plan (RRSP) contribution room.1 That works out to more than $40,000 for each tax filer. With a median annual RRSP contribution of just $3,000, it would seem Canadians are missing out on enormous tax-saving opportunities.

It’s difficult to understand why. RRSPs provide a number of benefits, including tax-deductible contributions, long-term tax-deferred growth, and diversification opportunities. And unused contribution room represents the potential loss of many years of tax-free compound growth. Adding just $2,000 to your RRSP in January 2018, for example, earning 8% annually, would bump up your savings by almost $11,000 by 2040.

One of the easiest and most convenient ways to ensure you are always taking full advantage of your RRSP is to start — or increase — regular investment contributions. Once formed, these good habits are hard to break. With regular contributions, you’re more likely to get closer to your maximum allowed contribution, and your money will begin to grow tax-deferred as soon as it’s in your plan.

Automatic plans are easy to set up, and you can choose a withdrawal date and frequency (weekly, bi-weekly, monthly, etc.) that dovetails with your cash flow.

1 Statistics Canada, CANSIM Table 111-0040, Registered Retirement Savings Plan (RRSP) room; accessed September 2017.