You've probably already seen the numbers before, but they are worth repeating.

To take full advantage of an RRSP, the sooner you start investing the better. As Figure 1 illustrates, the longer your savings have to compound tax free, the more you will ultimately benefit from the tax-sheltered investment growth that RRSPs provide.

As a comparison, the growth of the same investment held within a non-registered account is illustrated to show how tax deferral can work to your advantage over time. This RRSP investor starts at age 25, contributes $1,000 per year, receives an average 8 per cent annual rate of return on the investment, and is subject to a tax rate of 40 per cent. The final contribution is made at age 69.

The non-registered investor also starts at age 25, contributes $1,000 per year, but must pay tax on this amount first, leaving only $600 to invest per year, receives the same 8 per cent return on investment, and is subject to a tax rate of 40 per cent. Again, the final contribution is made at age 69.

The end result is that by taking advantage of the tax-deferred benefits of a registered account, the value of the RRSP increased to $417,426 at age 69. This compares to the non-registered account whose value is a mere $214,182.

The difference: $203,244*

Growth of a registered vs non-registered investment

Figure 1

*This example assumes that the taxable portion of the fund return is 25%, the tax rate on investment earnings is 25 per cent and the annual income tax payable by the nonregistered investor must be paid through withdrawals from the fund.