Retirement Planning and Best Ways to Invest for Retirement

Last Updated on

retirement plan canadaWhen novice investors start thinking about the future, one of the first questions they ask is: what is the best retirement plan in Canada? Unfortunately, there’s no single plan in Canada that will fully fund your retirement years, but there are plenty of options available to you. When you combine all of these elements together, you end up with multiple streams of income, which will (hopefully) provide you with enough money to fund your lifestyle during your retirement years.

The thought of different retirement plans may seem intimidating, but as you’ll quickly find out, things can be surprisingly easy to understand once you take the time to read about them. Here are some of the best retirement plans in Canada and how they fit with you.

Registered Retirement Savings Plan (RRSP)

Introduced in 1957, the Registered Retirement Savings Plan (RRSP) is the retirement plan that most Canadians know. What makes RRSPs appealing is that your contributions are deductible from your income. When you make a contribution, you’re essentially lowering the income tax payable during the year, which often results in a tax refund after you’ve filed your taxes.

Another benefit: any income or capital gains you earn within your RRSP are not taxed. However, when you withdraw from your RRSP in your retirement years, it’s seen as income and is taxed according to your marginal tax rate. Once you turn 71, your RRSP must be collapsed and converted into a registered retirement income fund (RRIF).

With RRSPs, there’s no minimum age limit, but you only earn contribution room after you’ve had employment income and have filed a tax return. Your contribution room is 18% of your previous year’s income. If you have a workplace pension, you would have a pension adjustment which would lower the amount of contribution room you have available.

Despite the word “savings” in the name, an RRSP account can actually hold different investment assets such as stocks, bonds, mutual funds, exchange-traded funds, and more. If you're a DIY investor, you can build your own portfolio with an online brokerage. With its low fees and easy-to-use DIY trading platform, we’ve rated Questrade as the best online brokerage in Canada.

However, if you don't feel comfortable with DIY investing, you can have your RRSP managed through one of the best robo advisors in Canada. It’s a great way for investors to set up an investment portfolio without the work of doing it on their own or the cost of hiring a full-service advisor. Offering low fees, easy-to-use platform, and excellent customer service, Wealthsimple is our top choice for the best robo advisor in Canada.

Another option: Tangerine offers an RRSP savings account with an amazing rate of 2.75% interest for the first 6 months — a great way to get started saving. With no fees and stellar customer service that's available 24/7, it's why we've ranked Tangerine as the best online bank in Canada.

Start saving with Tangerine.

Tax-Free Savings Account (TFSA)

Similar to RRSPs, Tax-Free Savings Account (TFSA) is an investment vehicle that allows you to hold various investments such as stocks, bonds, exchange-traded funds, mutual funds, and so forth, but the TFSA has a few different rules. Like the RRSP, you can open a TFSA investing account with an online brokerage or robo advisor, which will allow you to maximize your returns. For more information, read our article to find out how to invest your TFSA.

However, if you need flexibility and fast access to cash, opening a TFSA savings account might make more sense. This will allow you to withdraw the money at any time and get immediate access to your funds. A great option is Tangerine: for new customers, their TFSA savings account gives you 2.75% for the first 6 months. That's a phenomenal rate.

However, there are some key differences between the RRSP vs. TFSA. For starters, unlike the RRSP, you don’t get a tax break on any of your contributions to a TFSA. However, any income, capital gains, or dividends are completely tax-free if and when you withdraw your money. In contrast, with an RRSP, you get the deduction upfront but pay taxes on your withdrawals.

Another key difference: the TFSA is an all-purpose account. Unlike RESP or RRSPs, you can spend the money inside your TFSA whenever you want and on whatever you want. So you can use it to stash your cash to save up to travel or to buy a house. But really, since your savings compound tax-free inside your TFSA, it’s best used for retirement savings.

You must be a Canadian resident and at least 18 years of age to open a TFSA. How much money you can deposit to your TFSA is based on your current annual TFSA contribution room, plus any unused contribution room you have from the previous years. Since TFSAs were introduced in 2009, your contribution room only goes back to that date. Assuming you were 18 in 2009, this means that Canadians who were at least 18 years of age in 2009 can have up to $63,500 total in a TFSA.

It’s true that you can withdraw your money from your TFSA at any time. But how much you can contribute back into the TFSA depends on how much contribution room you have available. For example, let’s say you have maxed out your TFSA contribution at $63,500, but then you withdraw $10,000 in April. You can’t just put back $10,000 into your account in October unless you want to pay a penalty (known as a “TFSA over-contribution”). Instead, you will get the $10,000 in contribution room added onto your contribution room for the following year. So on January 1, your contribution room would include $10,000 on top of the contribution room limit for that year. Keep in mind that you don’t lose your contribution room. Any unused contributions get carried forward.

Many people wonder what’s better: a TFSA or RRSP? There’s no simple answer since it depends on so many different variables. The good thing is, you may have access to both so you don’t need to stick with just one. Whether you opt to channel your funds into a TFSA or RRSP (or both), you can have your money managed through robo-advisor like Wealthsimple (our top pick).

Contribution RulesTFSARRSP
Annual contribution limit$6,000 (as of 2019)18% of previous year’s earned income
(up to a max.of $26,500 for 2019)
Ages you can contribute18 and overUp to age 71
Get a tax-deduction in year of contribution?NoYes
Pay income tax in year of withdrawal?NoYes

Canada Pension Plan (CPP)

The Canada Pension Plan is Canada's public retirement income system designed to provide monthly income for retirees. The plan is funded by Canadian employees as well as their employers. It operates in all of Canada with the exception of Quebec, where the Quebec Pension Plan takes its place. How much you get paid on a monthly basis when you retire varies depending on a variety of factors, but the average payouts in 2018 are as follows:

  • Retirement pension (at age 65) – $673.10
  • Post-retirement benefit (at age 65) – $10.35
  • Disability benefit – $961.43
  • Survivor's pension – under age 65 – $424.15
  • Survivor's pension – 65 and older – $311.59
  • Children of disabled CPP contributors – $244.64
  • Children of deceased CPP contributors – $244.64
  • Death benefit (one-time payment) – $2,300.97
  • Combined survivor's and retirement pension (at age 65) – $862.50
  • Combined survivor's pension and disability benefit – $1,073.51

As Canada’s population ages and more Canadians retire, some people are concerned that the CPP monthly payments will be clawed back in the future, but that’s where the Canada Pension Plan Investment Board (CPPIB) comes into play.

The CPPIB is one of the world's biggest pension funds with nearly $400 billion under their management. The CPPIB uses a long-term, sustainable, and well-diversified investment strategy which will be able to stand up against any financial crisis and provide stable retirement income for generations to come.

Since CPP contributions are usually done automatically through payroll deductions, many Canadians don’t even realize that the CPPIB is actively managing the investment of the fund on their behalf.

While the CPP is designed to replace 25% of your lifetime income, it is not meant to be your sole pension.   You would still need other sources of income for the lifestyle you want during your retirement years.

Old Age Security (OAS)

Old Age Security (OAS) is another Government of Canada pension program that is available to seniors 65 or older who have legal Canadian status and meet the residency requirement. To get your pension payout, you must apply to Employment and Social Development Canada (ESDC).

In addition to OAS, you may also qualify for additional benefits such as Guaranteed Income Supplement, Allowance, and Allowance for the Survivor.

The payouts you get through OAS are not as high as CPP, but you would get both assuming you meet all the requirements. How much you get paid per month by OAS depends on how long you lived in Canada after you turned 18, your marital status, and level of income when retired. In 2018, the payouts per month were as follows:

  • Regardless of your marital status – $600.85
  • If you are a single, widowed or divorced pensioner – $897.42
  • If your spouse/common-law partner receives the full OAS pension – $540.23
  • If your spouse/common-law partner does not receive an OAS pension – $897.42
  • If your spouse/common-law partner receives the Allowance – $540.23

Even if you don’t qualify for a full pension, you may still be entitled to a partial pension if you’re 65 or older, a Canadian citizen or permanent resident who is currently living in Canada and has lived in Canada for the past 10 years.

Best Ways to Invest for Retirement

As mentioned, your RRSP and TFSA are investment vehicles which you can use to invest in various assets. But how do you actually invest and come up with the best retirement plan in Canada? That’s not an easy question to answer since all plans are different and how you should invest your money depends on a few various factors such as your timeline and risk tolerance.

Online Brokerages

If DIY investing interests you, you can create your own retirement investment plan or replicate some of the plans that robo advisors have. All you really need to do is set up an account with an online brokerage (which is really easy to do) and then make the trades on your own. Although you do have to pay for some of your transactions, your overall management expense ratio would likely be lower than robo advisors. Our top pick for the best online brokerage in Canada is Questrade and you can read why in our full Questrade review.

Get $50 in free trades when you start investing with Questrade.

Robo Advisors

If the idea of managing your own money does not appeal to you, there is an easy solution: robo advisors. When you work with a robo advisor, your plan is chosen for you after you answer a series of questions. The idea is that this short survey will help you determine your goals and you’ll then be recommended a certain plan/portfolio. This is appealing to some people since their portfolios are automatically rebalanced by the robo-advisors. There’s no work on their end, and they offer lower fees than a bank or brokerage.

There are many different robo advisors in Canada that provide excellent plans at a low cost, but our top pick is Wealthsimple. However, if you want to compare robo advisors in Canada head-to-head, check out our handy chart below and read our Complete Guide to the Best Robo Advisors in Canada.

Get your first $10,000 managed for free for a year when you start investing with Wealthsimple.

Online Investing PlatformBest ForYoung and Thrifty Readers PromoMore Info
Wealthsimple ReviewBest Overall Robo Advisor in CanadaGet your first $10,000 managed for free for a yearLearn More
BMO SmartFolio ReviewHuman TouchGet your first $15,000 managed for freeLearn More
Questwealth PortfoliosCompetitive FeesNoneLearn More
Modern Advisor ReviewExpert-Assembled PortfolioReceive $50,000 managed for free for one yearLearn More
Nest Wealth ReviewMature InvestorsTry Nest Wealth free for the first 3 monthsLearn More
Just Wealth ReviewInvestment VarietyReceive a cash bonus of up to $500 when you open a new Justwealth accountLearn More

Final Thoughts

As you can see, it’s impossible to answer “Which is the best retirement plan in Canada?” because there is no one plan that gives you everything you need. These retirement plans were designed to complement each other to provide you with multiple streams of income during your retirement years. Aside from CPP and OAS, you should play it safe by taking a few saving strategies.

If you need quick access to cash, keep some savings stashed in a TFSA or RRSP savings account. This will give you the most flexibility since you can withdraw the money at any time and get immediate access to your funds. Our top choice is Tangerine because their TFSA and RRSP savings accounts pay new customers a whopping 2.75% interest rate for the first six months.

If you’re looking for growth, low fees, and a bit of hand-holding, open a TFSA or RRSP investing account with one of the best robo advisors in Canada. A robo advisor takes all the hassle out of investing but without the high price tag of a traditional fund manager. Once you’ve picked a portfolio and set up a pre-authorized payment plan, all you have to do is “set it and forget it.” Our top pick is Wealthsimple and you can read our full Wealthsimple review to find out why we love it.

If you’re a savvy investor who’s comfortable with buying and trading on your own, opening an RRSP or TFSA investing account with an online brokerage is likely your best bet. The fees are rock bottom and you can design your own portfolio. Read our full Questrade review to find out why we’ve rated it the best online brokerage in Canada.

The bottom line? Plan ahead by spreading out your savings – and you’ll be ready to rock in your golden years!

The following two tabs change content below.
Hannah Logan is a freelance writer and blogger based in Ottawa. She has a passion for travel that has led her on adventures around the world and her stories have appeared online at Fodor’s Travel, Livestrong, World Nomads, Intrepid Travel, O Magazine, and more. You can keep up with her travels at

Leave a Comment

> >