RRSP Savings Calculator

How to use the Hardbacon RRSP Savings Calculator

It’s super easy to use our RRSP Savings Calculator. All you have to do is type the numbers in the right spot, and we do the rest. Don’t worry, we’ve labelled everything for you. To get started, we need to know:

1. Current RRSP Balance: This is where you will enter your current RRSP account balance. If you do not have any RRSP savings, enter 0
2. Annual Rate of Return Before Retirement: Enter the projected annual rate of return on your RRSP savings accounts based on your return expectation.
3. Regular Contributions: This is where you will enter how much money you plan to deposit into your RRSP account. You can also choose how often you plan to contribute.
4. Current Age: Enter how old you are right now.
5. Number of Years Before You Retire:  Enter how many years you have left from now until you retire. Do this by subtracting your current age from your desired retirement age.
6. Expected Retirement Duration: Enter how many years you will need to live on your retirement savings. You can make an estimation by subtracting your desired retirement age from 96, which is the life expectancy most financial advisors use
7. Annual Rate of Return After You Retire: Enter the projected annual rate of return on your RRSP savings account based on your portfolio risk after retirement.

If you are unsure what an annual rate of return is, refer to the bottom of this article to the section labelled “What is an annual rate of return?”

Understanding the results of the RRSP Savings Calculator

After you have finished plugging the numbers into the Hardbacon RRSP Savings Calculator, you will find the results on the right side. Here, you will see a snapshot of your financial situation at your retirement age. You see the total value of your contributions and how it impacts your retirement income.

Total Investment: The total investment is the sum of all your contributions. It includes your regular contributions from now until your desired retirement age, as well as your current RRSP account balance. It does not include any of your investment income.

RRSP savings at retirement: This number includes the total value of your RRSP savings at the time you retire. It adds together your current RRSP balance, total contributions from now until you retire, as well as all the investment income earned on your account based on the annual rate of return.

Estimated annual retirement income: This is the amount of money you can withdraw from your RRSP savings each year. The annual retirement income is based on how many years you plan to live in retirement before you pass away. It does not include income from other sources like a private pension, the Canadian Pension Plan (CPP),  Old Age Security (OAS), or other investments. It also does not take into account any income taxes that you may have to pay when you make a withdrawal. These are all factors that need to be taken into account when planning for retirement. For a more complete financial picture, you can use our Retirement Planning Calculator to include retirement income from other sources.

Learn more about the RRSPs and the calculator inputs

According to a recent study, only 71% of Canadians have a Registered Retirement Savings Plan (RRSP). Yet, most Canadians still worry about their financial security after they retire, if they can even retire at all. If you are just starting out with RRSPs, you can use an online broker to find plenty of RRSP eligible investments. You can use our online brokers comparison tool to find the right investment brokerage for your needs. Coupled  with the Hardbacon RRSP Savings Calculator, you can plan for retirement with confidence.

An RRSP can be a powerful financial tool, but it’s not well understood. Are you ready to take control of your money? Below is a guide to help you understand how an RRSP works so you can take control of your money.

How does an RRSP Work?

The RRSP helps Canadians save for their retirement. It allows you to set aside a portion of the taxable income you made during the current tax year for use at a later date, typically after you retire. You do this by making deposits, called contributions, into your RRSP account. RRSP contributions are subtracted from your total taxable income for the year in which you made the contributions, and are temporarily exempt from being taxed. Here’s how it works:

Heidi made $65,000 this year. She is using an RRSP to save for retirement. Over the course of the year, her total RRSP contributions were $11,000. Essentially, Heidi transferred $11,000 of her total taxable income this year, into her RRSP account for use at a much later date when she retires; essentially, she took a portion of her current income and transferred it to the future by depositing it into her RRSP account.

When it comes time to file an income tax return, Heidi claims her $11,000 RRSP contributions, which are subtracted from her total taxable income: the government says “Hey, Heidi made $65,000 this year, but she moved $11,000 of it to her RRSP account. We know she will use that income in the future. Therefore, we will only tax Heidi on her remaining taxable income of $54,000 right now.”

When Heidi goes to claim her eligible income tax deductions on her income tax return, they will be calculated off her remaining $54,000 income, not the full $65,000 she actually made. She is much more likely to get an income tax refund from the government. Heidi makes good financial decisions and will use the income tax refund wisely to reach her financial goals faster.

Earlier we said that RRSP contributions are only temporarily exempt from taxes, what does that mean? It means you absolutely will pay income tax, just not right now. You will pay tax on your RRSPs as you withdraw them, ideally during your retirement years after you have stopped working and your income is lower. In Heidi’s case, she will pay tax on every RRSP withdrawal she makes. So, if you’re just delaying taxes, why even use an RRSP account?

Benefits of an RRSP account

A RRSP  is an investment account, approved by the government, that uses the tax system to help Canadians save for retirement. Like we said earlier when you make RRSP contributions, they are subtracted from your total taxable income and only your remaining income is subject to income tax. Many Canadians will get a tax refund from the Government, which helps them save even more. But remember, it is not free money and you did not hack the system. The tax advantage simply defers tax to a later date to help you accumulate more wealth right now, during your peak earning years.

When it comes time to retire and you start withdrawing money from your RRSP savings, the government considers it income and will tax you on every withdrawal you make. Bummer right? Well, not exactly.

Most Canadians will fall into a lower tax bracket after they retire because they will have less income when they stop working. Even though you will be taxed on your RRSP withdrawals, ideally, it will be at a lower income tax rate in retirement than the tax rate you paid while you were working. That means many Canadians are still able to capture tax savings because of the difference between the tax rate during their peak earning years, versus a lower tax rate now that their income is lower after retirement.

An RRSP is a registered investment account that can help you grow your wealth more quickly than a traditional non-registered account or standard savings account. Investment income earned within an RRSP is not subject to investment-related taxes while it remains within the RRSP account. Instead, the tax is just deferred.

Your investments can grow more quickly, and you will accumulate more wealth in a tax-sheltered environment. However, you will pay tax when you withdraw from your RRSP account. Here’s how it works:

Heidi deposited $11,000 worth of RRSP contributions into her RRSP account. Those contributions were invested into different kinds of assets. Assuming an average rate of return of 5%, after 30 years her $11,000 will have grown to over $47,500, assuming she never deposited another penny. Her contributions were able to grow faster because she did not have to pay any investment-related taxes during the time her money stayed in the RRSP account. The money she would have had to pay for investment-related taxes was able to stay in the account and generate even more growth because of the 5% rate of return on investment. 

However,  the entire $47,500 will be considered taxable income by the government. Heidi retires and begins withdrawing from her RRSP account. Every RRSP withdrawal Heidi makes will be added to her total income for the year in which she made the withdrawals, and she is required to pay income tax according to her income tax bracket. 

Number of years to retirement and rate of return

In the Hardbacon RRSP Savings Calculator, the number of years between now and when you want to retire is one of the most important inputs. If you change your age in the calculator, make sure you also change the years left until you retire to get an accurate calculation. This is called the accumulation phase; the time you are actively working, saving, and investing for retirement. How much you save and how aggressively you invest during this time has a profound impact on the value of your total RRSP savings at retirement.

The longer the accumulation phase the better. That’s because your RRSP contributions earn investment income. The longer you have money in your RRSP account, the more time it has to generate investment income, which in turn compounds and generates even more income. To understand how the compound effect helps you accumulate wealth faster, use the Hardbacon Compound Interest Calculator.  It is important to start saving for retirement as early as possible so you can get the most benefit out of market returns and the compound effect. You’ll be able to contribute more over the long run, and your contributions will have more time to grow in value.

Years in retirement and the annual rate of return while retired

When you use the Hardbacon RRSP savings calculator it is important to estimate how long you think you will need to live off of your RRSP savings. Most financial advisors assume you will live to be about 96 years old. They do this to ensure you have enough retirement savings to live on comfortably until you pass away.

For an accurate estimate of how much RRSP savings you will need to sustain you until you pass away, subtract your desired age of retirement from 96. If you want to retire when you turn 65, you would subtract that from 96 to find that you need enough RRSP savings to support you for 31 years. Depending on how many years in retirement you enter, the RRSP Savings Calculator will display how much you can withdraw each year to support yourself during that time.

Having said that, depending on when you retire you do not have to stop investing in your RRSP. The Hardbacon RRSP Savings Calculator auto-fills a 2% rate of return on your portfolio after you retire. That is because it assumes you will continue to invest, but that you have rebalanced to a more conservative, less risky portfolio. You can change this to your own projected rate of return.

RRSP contributions: when can I start contributing, and how much?

There is no minimum age requirement to open an RRSP account. A Canadian resident who works and files a Canadian tax return can open an RRSP account. You earn contribution room every year you earn employment income, which you can then use the following year. You cannot contribute as much as you want, whenever you want. There are limits to how much you can contribute to your RRSP.

As of 2021, you can contribute 18% of your annual income into an RRSP to a maximum of $27,830 a year. Any unused contribution room is carried forward and added to your contribution room the following year. Most Canadians increase their annual income over time as they progress through their careers. That means if you do not make enough money to afford to maximize your annual contribution room, the unused portion accumulates. Simply put, new contribution room is added each year based on last year’s reported income.

If you get a raise, you might be able to increase your regular RRSP contributions without going over your maximum contribution limit. So how do you know how much contribution room you have in your RRSP? When you file your income tax return, the Canada Revenue Agency (CRA) will send you a Notice of Assessment (NOA) in the mail. Your NOA will tell you how much unused RRSP contribution room you have available.

What happens if I go over my RRSP contribution limit?

One of the aspects of an RRSP is that you have to pay close attention and keep records. The CRA will send you a NOA that outlines your available RRSP contribution room, but it doesn’t update in real-time. You get one NOA a year after you file your income tax return. Your available contribution room is based on your reported income and total contributions from the previous tax year and doesn’t update again until you file your next income tax return the following year.  If you’re not careful, you could accidentally deposit too much.

If you exceed your RRSP contribution limit, the CRA will charge you a penalty of 1% of the over-contribution amount per month, every month your over-contribution remains in the account. That’s a 12% annualized rate! However, if you accidentally over contribute to your RRSP, there are some things you can do.

First of all, the 1% penalty fee is waived for over-contribution amounts of $2,000 or less. However, that is a lifetime total overcontribution buffer. You cannot continuously over-contribute by keeping it under $2,000 each time.

Second, you can contact the CRA and ask them to waive the penalty. However, you will have to demonstrate that it was a reasonable error on your part. You will also need to show them you have withdrawn, or are in the process of withdrawing, your over-contribution amount.

How do you do that? You will need to explain in writing exactly how and why the over-contribution happened and submit it to the CRA. You will also need to include any supporting documentation, like your RRSP statement and transaction history, to show that the error was an honest mistake and that you have taken the excess contribution out of the account.

When can I withdraw from my RRSP?

As long as your RRSP is not locked in, you can start withdrawing from it anytime. That means if you can afford to retire early, at age 45 for example, you can withdraw from your RRSP account without penalty. However, you are required to pay tax on the amount you withdraw.

Of course, it is advisable to wait until after you have stopped working and are in a lower income tax bracket before you start withdrawing from your RRSP. When you withdraw money from your RRSP, it is considered income for the year in which you withdrew, and is taxed accordingly.

If you withdraw from your RRSP before you retire, while you are still working, your withdrawal amount is subject to withholding tax.

What is withholding tax? That means your bank or financial institution will hold back a portion of your withdrawal amount, called withholding tax, and send it to the government on your behalf. The rate of withholding tax depends on how much you withdraw and where you live.

Be careful here. Since your RRSP withdrawals are added to your total income for the year in which you made the withdrawal, the withholding tax may not be enough to cover the total amount of tax you may owe if your withdrawals bumped you up to a higher tax bracket. You may need to pay more tax when it comes time to file your tax return.

While you can start to withdraw from your RRSPs anytime, as long as they are not in a locked plan, you cannot keep your RRSP account indefinitely. In December of the year you turn 71, you are required to transfer your RRSPs into a Registered Retirement Income Fund (RRIF). If you don’t, the CRA will delist your RRSP, which means the entire balance of your RRSP account will be considered taxable income.

Furthermore, when you turn 72, you are required to withdraw a certain amount from your RRIF account each year. The amount you must withdraw depends on your age and the minimum amount goes up slightly each year. Your financial institution will calculate the tax, withhold it, and remit it to the CRA for you.

RRSP or TFSA: which one is right for me?

The Registered Retirement Savings Plan offers some tax benefits for Canadians. But in some cases, it’s better to contribute to a Tax-Free Savings Account (TFSA). Let’s take a look at when it makes sense to contribute to an RRSP, and when it doesn’t.

In 2009, The Government of Canada introduced the Tax-Free Savings Account to help more Canadians save and invest. There are no income tax advantages for TFSA contributions, but the investment income earned inside the TFSA is tax-free. Also, your withdrawals are completely tax-free and you can make a withdrawal anytime.

However, you have to be 18 before you can open a TFSA. Just like the RRSP, there are contribution limits too, but they are much more flexible. If you expect to be in a higher tax bracket in the future, you can simply transfer funds from your TFSA to your RRSP to capture the tax benefit. Personal finance is personal, and there are many situations when a TFSA is actually a better choice. 

Regardless of how much or how little money you make, one thing is for sure: if your employer offers an RRSP matching program, called a Group RRSP, then you should contribute to the Group RRSP. When you enroll in the Group RRSP matching program, a portion of your income will automatically be taken off your paycheck and deposited into an RRSP account.

Your employer will then make a matching contribution to the RRSP account too. Participating in your employer’s RRSP matching program is like giving yourself a raise. It’s free money, take it.

The tax advantage is more modest for those in lower tax brackets. Depending on how old you are, your career path, and your future income potential, you could end up being in a higher tax bracket after retirement. At that point, your withdrawals will be taxed at a higher rate, than at the rate at which you saved when the contributions were made.

Also, once you use up RRSP contribution room you don’t get it back like you can with a TFSA. With a TFSA, you get contribution room back in the following year. If you have any reason to believe you may earn more money after retirement than you do now, an RRSP may not be the best option for you. Speak with a financial advisor if this is a potential risk.

If your career has the potential for higher income in the future, you may want to contribute to a TFSA during your lower-income years, especially if you are young and just starting out, and save your RRSP contribution room for your high-income earning years when the tax advantage is better. As you progress through your career, your income increases, and you’re now in a higher tax bracket, you can always transfer money from your TFSA to your RRSP. You’ll have saved valuable contribution room and you’ll get a much better tax advantage.

If you are very young, you might get your first job while you are still in high school. Many university students also work part-time to pay for tuition. In these situations, your income may be so low that you do not pay any income tax at all.

Every Canadian receives a tax exemption on the first $13,808 of the income they earn each year, called the Basic Personal Income Tax Exemption. It is actually quite common for students and young people to make so little money that they do not pay any tax at all. If your income falls within this range, absolutely do not contribute to an RRSP. You aren’t required to pay tax on that income, but you will when you withdraw the funds in the future, which totally defeats the purpose of a basic tax-free income.

What is an annual rate of return?

The annual rate of return is a measure of how much your investment has grown over the year. It takes into account gains and losses to determine the average rate of growth. A rate of return is used to assess the overall performance of your RRSP investment portfolio. You can change the rate based on your expected rate of return.

How do you know when to change the rate of return in the Hardbacon RRSP Savings calculator?

With the Hardbacon RRSP Savings Calculator, you can change the expected rate of return to see how an aggressive, moderate, or conservative investing strategy impacts your total RRSP savings at retirement. An RRSP is an investment account, which means your contributions are invested into various types of assets. The assets you are invested in make up your portfolio.

What is a portfolio asset mix and how does it affect the rate of return?

The rate of return on your RRSP investment account depends on what kind of assets you are invested in, and how those assets are weighted. What do we mean by that? The mix of assets you hold inside your RRSP impacts how much money you will have at retirement. What is an asset mix and why is it important to your RRSP savings strategy? Let’s take a look.

Generally, a portfolio will fall into one of three categories: conservative, moderate, or aggressive. But what does that mean? These categories indicate how much risk an investor has taken on in order to generate a higher rate of return.

What do we mean when we talk about risk?

Generally speaking, an investment portfolio holds a mix of high-income assets and low-income assets. Higher-income assets are risker, while lower-income assets are less risky. These include, but are not limited to:

Equity assets are higher-risk assets and refer to things like stocks and shares. When you purchase stock or shares of a company, you become a part-owner. That means the company is legally required to share their future profits with you.However, you also risk losing money if that company experiences financial hardship or goes out of business.

Fixed income assets are lower-risk assets and refer to things like bonds and guaranteed investment certificates (GICs) to name a few. When you purchase a bond, for example, you are lending money to a company or government. Your investment income is the interest paid on the loan. As you can imagine, interest rates on loans are not very high. These types of assets are lower risk because companies are legally required to pay their debt obligations before they pay investors, and it is very unlikely a government will default on a loan.

For example, let’s take an aggressive portfolio. An aggressive portfolio holds a higher proportion of riskier assets and fewer less risky assets. A moderate portfolio holds a more balanced mix of higher risk assets and lower risk assets. While a conservative portfolio holds a much higher proportion of less risky assets, with very few or no higher risk assets at all.

Historically, an aggressive portfolio generates a higher rate of return but it risks losing money if market conditions change. Moderate and conservative portfolios tend to generate lower rates of return but they are less impacted by changing market conditions. That means they don’t benefit as much when the markets are up, but they don’t lose as much when the markets are down, either. What do we mean when we talk about higher risk and lower risk assets?

An aggressive portfolio asset mix tends to be 80-100% equities, and 0%-20% fixed income assets. A moderate portfolio tends to be about 60% equities and 40% fixed income assets. A conservative or low-risk portfolio tends to be 80-100% fixed income assets and 0%-20% equities.