The story and example has been retold many times of a son who had taken the time to count up his parents net worth whom it seemed to be strung across town in a myriad of small bank accounts and as well in saving bonds. When the son explained to his father, the net worth of his wealth in total the father exclaimed - "We're not rich. We never had money". Father the son explained "Did you ever hear of the power of compound interest? You had the power of compound interest working for you."
Canadians now have the RRSP (Registered Retirement Saving Plan) season on the way. Indeed few nations on earth allow their citizens such an investment spiff. Put away income at your time of highest earning. Allow it to grow and compound over time, tax free, sheltered of income and growth robbing taxes. The Canadian government is hoping and betting that first of all you will thus have a nest egg to live on and not be dependent on social programs which the government would have to provide to retirees.
This lightens the load for the Canadian government. It provides for a stable base for investment sources - for banks and other financial institutions to have a stable source of long term investment capital for mortgages and long term capital investment. The private investor does pay tax in the end - the government does collect it. However its is down the line when first of all the retiree will generally be taxed at a lower rate than their peak working years and the saving fund will have grown considerably with time and compound interest. Everybody wins so to speak and younger people at that point will benefit by having other people in their communities with money to spend for good and services - providing employment for the then younger generation.
What are the basic rules of Rasps for Canadians? First of all know your limits. Its crucial and the first step to know how much contribution room you have in dollars before sitting down to plan or buy RRSP financial instrument contributions.. This will actually be listed clearly on your last year's personal tax assessment from Revenue Canada. If you are unsure, or want to verify the amount, there is always a phone number or even an email address to contact the government agency.
Next contribute as much as you feel that you can spare. Remember a dollar saved or contributed is worth more than dollar invested. First there are definite tax savings. Next the money is sheltered from taxable interest. Even if you earned money in the bank or in Canada savings bonds as interest a good portion would go to pay the taxman, at your highest marginal rates. Most people spend close to their limit. If you do not the funds you will not or cannot spend them. An RRSP is a long term savings plan - not a piggy bank. You can withdraw savings in most cases. However you will pay your current high tax rates on withdrawals as if was income. It's best to leave some savings outside your Registered Retirement Saving Plan.
Contribute early - both early and earlier in the year than most. Contribute early in your life in possible. This way you have the great and wonderful power of compound interest working on your behalf with all its power.
What are the flip side and the negatives about RRSPs? Most people it seems never get around to contributing so this is often the least of most people worries. However two points should come to light. As with any investments you have the choice of risk rewards. If you choose risky investments then pay heed to the risk factor that you are playing with your retirement nest egg. If you are young and have time to recoup any lost capital that is fine. However if you are on the home stretch don't try to make up for lost time or be greedy.
In the end the summary of Canadians investing for their retirement nest egg through the vehicle of a Registered Retirement Income RRSP plan ahead , save early , save often and contribute as much as you feel that you can.
Shaun Stevens Winnipeg Manitoba Canada
Article Source: http://EzineArticles.com/?expert=Shaun_Stevens
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