A registered retirement savings plan (RRSP) is a savings plan that lets your investments grow tax-deferred. This means you won’t pay tax on the earnings until you withdraw the money, usually in retirement.
But how do you know how much you can (or should) contribute to your RRSP, and how to calculate your potential savings? An RRSP calculator can help!
How to Use an RRSP Calculator
An RRSP calculator helps you estimate the amount of money you could save in an RRSP by retirement. You can calculate the future value of your RRSP savings using factors like:
- your current retirement savings,
- the annual interest rate you expect your investment will earn,
- contributions to your RRSP, and
- the number of years until you retire.
In other words, an RRSP contribution calculator is a smart helper that does the math for you. Using it is quite easy. Just follow these steps:
Step 1: Find the Calculator
You can locate our RRSP calculator on our Savings Calculators page.
Step 2: Enter Your Details
For this retirement calculator, there are twelve fields you’ll need to fill out. They are:
Current age: Your age today.
Retirement age: The age you expect to stop working.
Years in retirement: How long you expect retirement to last (e.g., retire at 65 and live to 90 → enter 25).
Desired annual retirement income: The yearly amount you’d like to live on in retirement.
Current retirement savings: What you’ve already saved toward retirement.
Annual contributions: How much you plan to add each year before retiring.
Government pension: Estimated yearly income from public pensions (e.g., CPP/OAS).
Employer pension: Estimated yearly income from any workplace pension.
Additional income: Other yearly income you expect in retirement (investments, rentals, etc.).
Annual rate of return (pre-retirement): Your expected average yearly investment return before you retire.
Annual rate of return (post-retirement): Your expected average yearly investment return after you retire.
Inflation amount: The annual inflation rate you want the calculator to apply to contributions and pension amounts.
How to Interpret Your RRSP Calculator Results
The RRSP savings calculator does the math and presents the projections instantly. Simply click the ‘Enter’ or ‘Return’ key on your keyboard, or touch anywhere on the screen (for touch-sensitive devices).
The output section tells you three things:
whether your retirement status is on track or below target,
the estimate of total funds saved by the time of retirement, and
whether you will have a contribution surplus or shortfall at retirement.
Suppose you are 30 years old and plan to retire by 65. Assume that you have $135,000 in current retirement savings and intend to contribute $9,820 annually. Assume also that you will live 25 years in retirement, during which the annual income will be $35,000. If you’ll be receiving $12,000 in government pension, and assuming a 3% yearly rate of return (pre-retirement) and 4% post-retirement, and a 0.72% inflation rate, the calculator projects that your retirement status is on track, and you’d have saved $973,609.07 by the time you exit employment.
The ‘On Track’ retirement status means you’re saving enough to meet your retirement goals. You won’t run out of funds if you follow the current strategy. The ‘Total saved’ amount is the money you will have in your RRSP by the time you exit employment. This is a sum of your contributions and the investment growth over time.
But now change the annual contribution to $1,000, and suddenly the status is ‘Below target’, and you’ll be facing a huge contribution shortfall. The same happens when you change the rates and retirement age. As such, always test different scenarios to optimize your RRSP.
Please note that these results are estimates for illustration only. This is not financial advice. Always consult your financial advisor before making a decision.
Why Use an RRSP: The Tax Advantage
The RRSP’s biggest selling point is the tax benefit. When you put money into your RRSP, the government gives you a tax break based on your applicable tax rates. That means you pay less tax now. It is deducted later at the time of withdrawal when you are retired and presumably in a lower tax bracket.
Here’s an example. Suppose you earn $80,000 in a year. If you contribute $14,400 to your RRSP, the government treats it as if you only earned $65,600. And that means you pay tax on $65,600, not $80,000.
Once you’ve run your numbers with the RRSP calculator, you’re not on your own. If you have questions about RRSPs or your calculator results, our team is happy to help. Get in touch, or start your application now.