Get money-saving tips in your inbox.

Stay on top of personal finance tips from our money experts!

News & Resources

Pro Post: Why RRSPs and RESPs Don't Always Work For Immigrants

July 21, 2014
4 mins
A person drops a coin into a piggy bank while sitting at a table with a coffee

Preparing financially for retirement and education can be a challenge for any Canadian - but time is especially of the essence for older immigrants who have not benefited long term from Canada's RRSP and RESP programs. Pro poster Pracheer Saran shares the steps some newcomers take to overcome these hurdles.

When new immigrants get together to socialize, a few favourite conversation topics tend to pop up. They include the struggle to find a decent job in their field (everyone has an equally unique story), the Canadian job market, taxes, and the possibility of moving to the U.S. Money - and how to save it - is always up for discussion.

A similar conversation recently took place at a dinner between my wife and I and our new neighbours Glen and Simone. This couple is fairly new to Canada, having moved from India six years ago, and they have done very well for themselves; Glen is an assistant manager in the pharmaceutical sector earning $50,000, while Simone earns $30,000 as a graphic designer. They also own a home, purchased for $383,000, with 20% paid down.

However, the couple’s concern is that they aren't saving enough for retirement, or for the post-secondary educations for their two children, Peter, aged 14, and Sara, aged nine.

Playing Catch-Up on Retirement

As the couple is in their late 40s, their options seem limited - especially in regards to investing in RRSPs. Because they have not contributed much thus far, doing so now would result in taxation in retirement without enjoying much of the accompanying tax savings. Instead, they plan to put the maximum permissible amount of $5,500 into their Tax-Free Saving Account (TFSA) each year. They also plan to invest in a good life insurance plan to cover their outstanding debts and cost of living in case one of them unexpectedly passes away.

The good news is both Glen and Simone have pension plans from their respective jobs - but as they work for private companies, they plan to withdraw their pensions as a lump sum; private pensions provide little protection from inflation, unlike government plans, which by far are more secured and indexed to inflation.

A Plan for Home Pay-Off

Glen and Simone have a remaining mortgage amount of $309,400, with a 3% fixed rate for a five-year term. They pay monthly installments of $1,453, and plan to be mortgage-free in 20 years, provided interest rates don't fluctuate too much. Their lender offers the ability to pay a 10% anniversary payment annually on their mortgage, a feature they utilize.

Once the mortgage is paid off, they plan to beef up the amount in their non-registered contributions; they plan to invest their money into equities, and sell them at the right time for a profit. The benefit to that would be only 50% of their gains would be counted toward taxes. If held outside an RRSP or other tax-deferred account, these investments would prove to be tax efficient.

A Head Start for the Kids

The couple opened RESPs for their children as soon as they could. As Peter has only three years before turning 17, time is running out to contribute to his fund and take full advantage of the Canada Education Savings Grant (CSEG), which pays 30% on the first $500 contribution, and 20% on contributions between $501 - $2,500.

Although it is not possible for them to receive the maximum $7,200 grant money, by aggressively increasing their annual contributions, they can come close to the maximum amount.

Catching Up On a Lifetime of Savings

For Glen and Simone, RRSPs won't be the most important component to their retirement plans - other smart investments will prove to reap the true benefits, and cover their retirement and education goals.

About the Author: Pracheer Saran

I am a travel enthusiast and a freelance writer who loves to write about my escapades, from travel to beer – but when it comes to finances, I still had a lot to learn. I first moved to Canada five years ago, and as a new immigrant, getting a credit card to building a credit history was a mammoth task for me. I mostly learned from trial and error – and am still learning!

There is some homework a new immigrant can start a few months before moving to Canada to ensure a smoother settlement. So fasten your seat belts and join me for an informative ride as I share the challenges of managing my daily finances, hunting for my first job, battling high car insurance rates, buying my first house and securing a mortgage.

Pracheer Saran

Pracheer Saran is a travel enthusiast and a freelance writer who loves to write about his escapades, from travel to beer – but when it comes to finances, he still had a lot to learn. Pracheer first moved to Canada five years ago and found that as a new immigrant, getting a credit card to building a credit history was a mammoth task for him. He mostly learned from trial and error – and is still learning!

Latest life insurance articles

10 Life insurance myths debunked
Life insurance is for someone older or has kids, right? Wrong. Let’s debunk life insurance myths and learn why everyone needs some form of coverage.
6 mins read
Do you need life insurance? A primer for Canadians
Life insurance isn’t a one-size-fits all solution. But if you have dependents, it can be an important financial safety net for those you love.
7 mins read
Why life insurance should be part of estate planning for new parents
Life insurance is one of the best ways new parents can protect their family and help loved ones in the event of your unexpected death.
5 mins read

Subscribe to our newsletter

Stay on top of our latest offers, relevant news and tips!

Thanks for joining!

You'll be hearing from us shortly - stay tuned.