Is maximizing an RSP contribution a reality for the so-called middle class family?
With the RSP deadline fast approaching, I thought it a good time to see how us average Canadians might maximize RSP contribution limits for use in our future retirement. Based on the “Taxes versus the Necessities of Life: The Canadian Consumer Tax Index, 2015 edition” published by the Fraser Institute, we are approaching 45 per cent of our income paid to taxes on all levels.
Let us use as an example, a family with $100,000 of income. About $45,000 will go to various types of government taxes. For the necessities of life — food, shelter and clothing — we spend about another 35 per cent or $35,000. Now, based on the advice of our governments, our banks and our financial advisers, we need to maximize our RSP contribution for retirement, which is 18 per cent of the $100,000 or $18,000.
Let’s add that up: $45,000 for taxes, $35,000 for food, shelter, and clothing and $18,000 for future retirement, equals $98,000. Fortunately an RSP contribution, if made, creates a deferral of some tax, but the point remains the same. The cupboard is bare.