RRSP: How to Turn $12,000 Into $575,000 for Retirement

The 2021 RRSP deadline is just around the corner. Here’s a proven strategy for choosing top stocks to build a significant savings fund for retirement.

| More on:
Retirement plan

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

March 1 is the 2021 RRSP deadline to make contributions for the 2020 tax year. Investors are now taking a look at their retirement savings and wondering which stocks might be the best buys for a retirement fund this year.


Canadian savers ideally max out their RRSP and TFSA contribution limits every year. Not everyone has the cash flow to do that, and choosing between the two options depends on your age and income.

For example, younger investors who will likely earn more money in future years might consider using the TFSA space first and keep the RRSP room for down the road when they are in a higher marginal tax bracket. RRSP contributions reduce taxable income, so you want to get the best tax impact possible. The goal is to pull the money out in retirement when we are potentially in a lower tax bracket than when we made the contributions.

Company pension contributions reduce the RRSP room available each year, so the top up might be a small amount and extra cash could then go into a TFSA. The RRSP limit is 18% of the previous year’s income up to a maximum level.

Best stocks for self-directed RRSP investors

The stock market crash in 2020 reminded investors that stocks carry risk. The subsequent rebound also showed that market corrections tend to provide great buying opportunities.

RRSP investments are typically buy-and-hold positions. Market dips offer a chance to add to the portfolio at cheap prices. The best stocks to own for the long haul are typically industry leaders with long track records of dividend growth supported by rising revenue and higher profits. Investors can boost their returns by using the dividends to buy additional shares.

Let’s take a look at Canadian National Railway (TSX:CNR) (NYSE:CNI) to see why it might be a good pick to start the RRSP portfolio in 2021.

Why CN stock deserves to be on your buy list

CN transports everything from lumber, cars, and finished goods, to crude oil, coal, fertilizer, and grain. These essential items are needed to keep the Canadian and U.S. economies operating efficiently. CN is the only rail carrier in North America with tracks that connect ports on three coasts. This gives the company an important competitive advantage.

CN still has to compete with trucking companies and other rail carriers on some routes. Management makes the capital investments needed to ensure the business has the capacity to meet rising demand. This includes new locomotives, additional rail cars, and track upgrades. The company also makes strategic acquisitions to drive growth.

CN generated $2 billion in free cash flow in the first three quarters of 2020. That’s impressive given the challenging economic environment. The dividend should continue to grow at a steady rate. CN raised the payout by a compound annual rate of 16% since it went public.

Investors have enjoyed great returns by holding the stock. A $12,000 RRSP investment in CN 24 years ago would be worth about $575,000 today with the dividends reinvested.

The bottom line on RRSP investing

CN should continue to be an anchor position for RRSP investors. A balanced portfolio is always recommended and the strategy of owning top dividend stocks and using the distributions to buy new shares is a proven one.

The TSX Index is home to many high-quality dividend stocks like CN and many still appear reasonably priced right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. Fool contributor Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 Top Dividend Stocks to Buy Under $20

Given their stable cash flows and high dividend yields, these three under-$20 stocks could boost your passive income.

Read more »

Growing plant shoots on coins
Dividend Stocks

3 Dividend Stocks to Buy During Recession to Lock In a 6% Yield

Make the most of the recession with dividend investing. You can buy stocks for a discount and lock in higher…

Read more »

Dividend Stocks

Put TFSA Cash to Work: Earn a Tax-Free Yield of at Least 5%

By investing your TFSA cash in these stocks, you can earn a reliable and high yield of more than 5%.

Read more »

edit Sale sign, value, discount
Dividend Stocks

3 Dividend Stocks That Are Dirt Cheap Right Now

These dividend stocks remain dirt cheap for investors to consider picking up, with plenty of room for growth in essential…

Read more »

grow dividends
Dividend Stocks

Economists: 100% Chance of a Super Rate Hike in 9 Days

The worries of homebuyers and homeowners will compound further if the Bank of Canada pushes through a super rate hike…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

RRSP Wealth: 2 Top TSX Dividend Stocks to Buy for Total Returns

These TSX dividend stocks look cheap right now and offer RRSP investors at shot at attractive total returns.

Read more »

Dividend Stocks

This Stable, Undervalued REIT Offers Some of the Highest Passive Income

If you want stable passive income that sets you up for long-term growth, this is the top REIT to consider…

Read more »

Happy retirement
Dividend Stocks

Happy Retirement: Do 1 Thing 1st, Then Go All Out on Your TFSA

Canadians using their TFSAs to save for the future need only one foolproof plan to ensure a happy retirement.

Read more »