As employer-based pensions become obscure, saving for your retirement is imperative, especially if you want to maintain a similar standard of living beyond your working years and ensure your own financial security.

Registered Retirement Savings Plans (RRSPs) have become the primary means by which most Canadians save for retirement because of the tax advantages they provide. However, it is important to understand how these tax advantages will or will not work to your benefit and what other retirement planning options are available to you.

What is a RRSP? 

A Registered Retirement Savings Plan (RRSP) is a long-term, registered savings account with the federal government and managed under Canadian tax law that helps you save for your retirement in advance.

How RRSPs Work

If you earn an income and file an annual tax return, you can open a RRSP account and make contributions. Keep in mind there are limitations to how much you can contribute to your RRSP each year.

  • 18% of your earned income in the previous year
  • *Maximum contribution amount for 2023: $31, 560

If you’re unable to contribute the maximum amount in any given year to your RRSP, the unused contribution balance can be carried forward.

Investments held in your RRSP are called qualified investments and can include a range of products. How you diversify this portfolio will depend on your risk tolerance and whether you are a conservative, moderate or aggressive investor and the products you choose to invest in.

As a result, your RRSP portfolio may be subject to market volatility and fluctuations, and may not have a guaranteed return on your investment from one year to the next.  Potential losses are subject to the type of portfolio you have and your level of risk.

RRSPs are also designed as a long-term investment solution and can’t provide you with liquid capital if you need it. Funds are essentially “locked-in” by the federal government. If you liquidate your RRSP before retirement, be prepared to pay a hefty withholding tax. Provincial tax rates are between 10% and 30%, depending on how much you take out of your RRSP. In Quebec, the rate is between 5% and 15% and there will also be provincial tax withheld.

*Maximum contribution levels are set by the federal government and change annually.

Benefits of RRSPs 

When you make a financial contribution to your RRSP, you reduce your taxable income by the amount of your deposit.  This provides you with a tax-deduction, and in some cases, an actual tax refund when you file your income taxes. But the truth is, tax on a RRSP is simply deferred to retirement when you withdraw funds.

While you may be in a lower tax bracket, don’t bank on it. You’ll have to consider what future inflation rates will be and what your actual cost of living will be when you do retire. Will you also still be paying off a mortgage or possibly renting?  Not to mention some of the luxuries in life you may want to enjoy, like travel for example.


A RRIF is a tax-deferred retirement plan under Canadian tax law you can use to generate income from the savings accumulated under your RRSP. Where an RRSP is designed to help you save for retirement, a RRIF is designed to provide you with income payments from your savings during retirement.

Your RRSP can be converted to a Registered Retirement Income Fund (RRIF) at any time. However, an RRSP must be converted to a RRIF, annuity, or paid out in a lump sum by the end of the calendar year that you turn age 71.

Unlike RRSPs, when you make a withdrawal from a RRIF, there is usually no withholding tax paid to the federal government if you withdraw only the minimum amount. If your withdrawal exceeds the minimum level, you will pay a withholding tax like that on an RRSP. There is also no withdrawal fee to the financial institution holding your account.


You may also choose to invest your tax refund from RRSP contributions into a Tax-Free Savings Account (TFSA). Available contribution levels for TFSAs are indexed by inflation with limits varying annually and also consider unused contribution room and withdrawal amounts from a previous year. The money in your TFSA can compound over time with earned interest. This account can be used as an emergency fund, for other savings goals, or even your retirement. The choice is yours.

If you withdraw money from a TFSA, you can re-contribute those funds again in the following year. You can also diversify the funds in your TFSA in a range of investment products similar to an RRSP.

The primary benefit of a TFSA is money can be liquidated at any time tax-free, unlike an RRSP.  As a retirement savings option, TFSA withdrawals and it’s earned income doesn’t affect your eligibility for income-tested benefits such as the Old Age Security (OAS)Guaranteed Income Supplement (GIS) or GST tax credits. 

Segregated Funds vs RRSPs 

When you invest in an RRSP your investment has the potential to grow when the market goes up. However, what happens when the market goes down and the value of your investment plummets? Traditional investments such as RRSPs involve taking on risk, and potentially losing money, especially if they’re being diversified in products such as mutual funds. Why not financially protect your investments so you’re guaranteed a return and not a loss?

segregated fund is an investment fund that combines the growth potential of a traditional mutual fund with the security and financial protection of a life insurance policy. Segregated funds, offered by life insurance companies and sold through a licensed agent, are individual insurance contracts that contain a diversified variety of asset mixes and offer unique features that mutual funds do not.  Approximately 75 to 100 percent of your investment is guaranteed when your contract matures or upon death.

Participating Whole Life Insurance vs RRSPs 

If you want a tax-free, retirement savings plan you can easily liquidate with no penalty, you should consider participating whole life insurance. Participating whole life insurance is a unique, all-in-one financial solution that works to protect and preserve your estate and legacy in the future while helping you plan and save for retirement simultaneously.

When structured using one of our Bank On Whole Life™ concepts, participating whole life insurance not only offers you insurance protection and a tax-free death benefit but a cash value. This cash value is a supercharged asset that allows you to build equity year over year through guaranteed returns and potential dividend earnings.

A participating whole life insurance policy with a cash value also eliminates any second guessing because you know exactly the minimum guaranteed value of your account on the day you expect to withdraw from it.  RRSPs, subject to market fluctuations and volatility, can’t provide you with a guaranteed value of funds upon withdrawal and therefore the same level of financial security in retirement.

Also with an RRSP, the government dictates how much money you can put in and when you can withdraw it, providing you with limited access and control over your own money. If you withdraw money prior to retirement, the government penalizes you with hefty withdrawal fees. On the contrary, using participating whole life insurance as a retirement savings vehicle provides you with financial control for life and complete liquidity of your own money.

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