Prepare for a worry-free future

Canada Pension is a mandatory pension plan that all workers pay into. Their employers also pay a similar amount, currently a maximum of about $2000 per year per employee.

The money in the CPP is managed by a team of professional managers, who invest the money in a broad range of investments.

Upon retirement, each person receives a pension based on the length and amount of their contributions. The pension is taxable

An RRSP, on the other hand, is your own money which is invested in whatever way YOU choose. There are a broad range of choices in plans, and one can be found for just about any investment viewpoint or desire. Money invested in an RRSP receives an immediate 100% tax deduction, and any investment earnings the plan makes are also sheltered from tax until withdrawal.

At any point, but usually on retirement, the money in the RRSP can be withdrawn in whole or in part. The money is taxable at that point.

A good retirement plan includes both CPP and RRSP funds. CPP alone will be too low to maintain any sort of lifestyle through retirement.

One comment on zarbin’s final note below: Up until fairly recently, CPP was not treated as a standard pension fund, but was funded through government general revenues. In other words, nothing was put away to pay future payments. That raised the very real possibility that come retirement age, especially for the baby boomer generation, there would not be enough people left working to pay the pensions of retired workers. So a number of years ago, the government of the day converted the CPP program into a properly run, properly funded program which uses standard actuarial programs to invest and put aside funds for future use. Experts now agree that the program is self funding and will not have any problems funding future pensions.

CPP is automatically deducted from your pay cheques by the federal government from the moment you start working. When someone reaches the age of 60 they can start taking CPP; they’ll get a bit less than if they wait till they’re 65. You get your CPP in the form of a monthly cheque.

RRSPs are investment plans. You take the money you’ve made and invest them into a RRSP and hopefully make more. Once you take that money out, though, you get taxed on what you’ve made.

People have RRSPs and other retirement plans becasue CPP typically isn’t enough to live on once you’ve stopped working, And a lot of people have thought for awhile now that eventually there won’t be anything left in the CPP fund for younger generations to collect.