The Co-Operators

The Co-Operators

February 05, 2013 09:12 ET

RRSPs-Answers to Common Questions

GUELPH, ONTARIO--(Marketwire - Feb. 5, 2013) - Thinking of buying a lottery ticket in hopes of funding your retirement? Why take chances with your money when you can invest in a safe and secure registered retirement savings plan (RRSP)?

Why buy an RRSP?

In addition to helping you save for retirement, there are two great tax benefits:

1. An RRSP contribution reduces your income tax. Depending on your income, you'll end up either owing less tax or receiving a higher refund.

2. The money earned by an RRSP is not taxed until it's withdrawn; it grows tax-free while it's in your plan. Then, when you're ready to retire, you're likely to pay less tax on it because your income is typically lower.

Purchasing an RRSP will help reduce income tax and accumulate tax-deferred savings for your retirement.

But what about the government pension plan?

As of 2011, more than 20% of the population is 65 or older. Fewer people are working and contributing to the government pension plan, so your pension benefits might not be as generous as you expect. So when it comes to pension planning, it makes sense to have your own plan in place.

How do people manage to come up with money at RRSP time?

Many people contribute smaller regular monthly amounts instead of one large annual lump sum payment. Not only is it easier to budget, but it also increases the value of the investment faster. You can talk to your financial advisor about whether you might benefit from an RRSP loan.

What's the difference between buying an RRSP from a life insurance company compared to another financial institution, like a bank?

One important difference is the type of investments held within an RRSP. Life insurance companies can offer a secure option called segregated funds. Just like mutual funds, segregated funds are invested in equities, bonds and other investments. However, they differ dramatically in that segregated funds guarantee all or most of your principal investment upon maturity or death, while mutual funds generally have no guarantees at all.

What are the benefits of buying your RRSP through a life insurance company?

Financial strength. Strict legislation makes the Canadian life and health insurance industry one of the strongest financial sectors in the world.

Retirement options. At retirement, life insurance companies also offer a full range of options for your RRSP funds, including Registered Retirement Income Funds (RRIFs) and annuities payable for life. Life annuities are only available through life insurance companies.

Protection against creditors. RRSPs held with life insurance companies offer potential protection from creditors. In most cases, if you name a spouse, child, grandchild or parent as a beneficiary, the benefit is protected from the claims of creditors. This feature is especially important for business owners.

Fast settlement of claims. In the case of death, the funds will pass directly to your named beneficiary, avoiding costly probate and legal fees as well as lengthy delays.

A Consumer Protection Plan administered by Assuris provides protection to policyholders by guaranteeing up to $60,000 or 85% of the segregated fund RRSP money (whichever is greater) per individual per member company.

For more information, contact a local Financial Advisor or visit our website at

*Statistics Canada. (2012, May 30). The Canadian Population in 2011: Age and Sex. Retrieved from:

About The Co-operators

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