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IMPORTANT NOTICE: As of Jan. 1, 2020, The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company became one company – The Canada Life Assurance Company. Learn moreOpens a new website in a new window - Opens in a new window

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Pay yourself first

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Does it feel like there isn’t much money left in your paycheque after the government takes its share? Then pay yourself first – before the government taxes you. Payroll deductions can be deposited directly into your retirement plan before income tax is calculated. Here’s how it works:

Let’s say you earn $1,000 of gross pay. With a tax rate of 35 per cent, you pay $350 in tax. If you contribute $150 each pay period to a retirement plan, such as the one you have at work, you only pay $297.50 in tax. So, while $150 is invested in your retirement, your take-home pay is only reduced by $97.50. You’re not only paying yourself first, you’re paying less tax upfront and saving for the future. 

Same monthly savings, higher take-home pay

Retail

Group plan

Monthly take-home pay

$500

$560

Monthly savings

$300

$300

Taxes paid

$201

$140

Same take-home pay, higher monthly savings

Retail

Group plan

Monthly take-home pay

$500

$500

Monthly savings

$300

$375

Taxes paid

$201

$125

Take a tax break. Make it a habit to have a portion of every pay deposited directly into your group retirement plan. 

Paying yourself first pays off.

The above example is for illustrative purposes only; situations may vary according to specific circumstances. Tax rates are based on 2013 Ontario provincial and federal rates combined. Source: Canada Revenue Agency.

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Next lesson: Lump sum contributions

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