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Although retirement is a distant concept for many medical students and residents, it is never too early to start planning and saving for the day that you won't be working. Opening and contributing to a Registered Retirement Savings Plan (RRSP) is something you should be considering now.
Since the vast majority of physicians are self-employed, the benefits of an employer-sponsored Registered Pension Plan or Deferred Profit Savings Plan are not available. In addition, the ability of the Canada Pension Plan to withstand and survive the significant financial demands as the "baby boom" generation begins to retire is doubtful. As such, RRSPs are essentially the principal retirement savings vehicles for physicians.
With the significant effort of the CMA, the provisions of the RRSP were initially introduced in 1957 as a government effort to encourage Canadians to save for retirement. Since the RRSP not only reduces current tax obligations and defers future income tax but also allows retirement assets to grow in a tax-free environment, the government is essentially subsidizing taxpayers' retirement savings. Even with all these benefits, only 30% of Canadians took advantage of an RRSP in 1997!
Other than the initial tax deduction for eligible contributions, the RRSP merely provides a deferral of tax. When funds are withdrawn, for current needs or retirement income, the money will be taxed at rates in effect in the year of withdrawal, except when it is borrowed from the RRSP under the Home Buyer's Plan or the Lifelong Learning Plan. Nevertheless, the tax deductions and tax-free accumulations within an RRSP will amount to significantly greater earnings than if savings are accumulated outside an RRSP.
The financial demands placed on medical students usually prevent the consideration of RRSP contributions. Students whose income falls below the basic personal exemption of $6,956 don't even receive the benefit of deducting RRSP contributions on their tax forms. So it is no surprise that most medical students wait until residency to begin contributing to their retirement savings.
With residency comes cash flow and, in most cases, the ability to contribute toward retirement. It's never...