Comments on: Pensions & RRSPs http://gailvazoxlade.com/blog/archives/874 Thu, 09 Feb 2012 02:58:08 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: PittyPat http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-20143 PittyPat Tue, 24 Nov 2009 16:30:02 +0000 http://gailvazoxlade.com/blog/?p=874#comment-20143 I've just discovered this site and so just read Irene's and Jesse's posts. I have been doing alot of research on this subject and conclude that RRSPs seem like the way to go for everyone BUT low-income seniors and high-income seniors. Irene, if you think you would qualify for the Guaranteed Income Supplement (GIS) then please think twice about contributing to an RRSP. Withdrawing taxable RRSP benefits while a pensioner could likely result in a reduction, or clawback, of the GIS. This is a big penalty for all your hard work scrimping for an RRSP. Other means-tested benefits may also be lost. See http://www.hrsdc.gc.ca/eng/isp/oas/oasrates.shtml for more details on income levels for the GIS. But that doesn't mean you stop putting money aside. Keep on saving! - I think its where it is put that makes all the difference for a low income senior. If I knew I would likely have only a small pension when I retired, then I would forget the RRSP and put my money in a TFSA instead. That way I'd be building up my own "pension" fund without facing future taxes on it (be careful about investing much of it in mutual funds given your few years to retirement though- maybe 30% in mutual funds unless you think you will need the money in the next 10 years in which case much less). Earnings and withdrawals in a TFSA doesn't affect the GIS later on and I wouldn't be forced to begin taking it out at age 71 like I would with an RRSP. If I somehow managed to start making more money and moved into a much, much higher taxable income bracket, then I might take out some of my TFSA to buy an RRSP BUT only enough to reduce my taxable income back to the lower level. Bottom-line: I'd choose TFSA over RRSP if I was going to be a low-income senior or for that matter a young person just starting out with low taxable income. At the other end of the spectrum, those with good defined-benefit plans expecting to receive pensions and other income that could result in clawbacks from Old Age Security should also think twice about contributing to an RRSP. This is because having to take out RRSP funds beginning at age 71 on top of an OAS could result in what amounts to an extra 15% tax, or clawback, on the OAS as well as a forced bump into a higher tax bracket. Ouch. Double tax hit! Also, if you will be getting a severance benefit when you retire and don't contribute to RRSPs over the years then you have built up room in your RRSP to put your severance pay in to avoid a big tax hit and gain more flexibility for financial planning. I wish I'd figured this out years ago as I am 2 years from retirement with maxed out RRSPs. If I knew then what I know now I would have paid off my mortgage faster, built up the emergency fund, invested outside of the RRSP - TFSAs are awesome for this - and if I did contribute to RRSPs I would have contributed just enough to bring me into the next lower tax bracket. Now I must figure out how to strategically move funds out of the RRSP into non-registered investments before my 64th birthday - in other words before the OAS and dreaded clawbacks. Not a bad problem to have but no body likes to give away their hard earned funds to the tax department! I’ve just discovered this site and so just read Irene’s and Jesse’s posts. I have been doing alot of research on this subject and conclude that RRSPs seem like the way to go for everyone BUT low-income seniors and high-income seniors. Irene, if you think you would qualify for the Guaranteed Income Supplement (GIS) then please think twice about contributing to an RRSP. Withdrawing taxable RRSP benefits while a pensioner could likely result in a reduction, or clawback, of the GIS. This is a big penalty for all your hard work scrimping for an RRSP. Other means-tested benefits may also be lost. See http://www.hrsdc.gc.ca/eng/isp/oas/oasrates.shtml for more details on income levels for the GIS. But that doesn’t mean you stop putting money aside. Keep on saving! – I think its where it is put that makes all the difference for a low income senior.
If I knew I would likely have only a small pension when I retired, then I would forget the RRSP and put my money in a TFSA instead. That way I’d be building up my own “pension” fund without facing future taxes on it (be careful about investing much of it in mutual funds given your few years to retirement though- maybe 30% in mutual funds unless you think you will need the money in the next 10 years in which case much less). Earnings and withdrawals in a TFSA doesn’t affect the GIS later on and I wouldn’t be forced to begin taking it out at age 71 like I would with an RRSP. If I somehow managed to start making more money and moved into a much, much higher taxable income bracket, then I might take out some of my TFSA to buy an RRSP BUT only enough to reduce my taxable income back to the lower level. Bottom-line: I’d choose TFSA over RRSP if I was going to be a low-income senior or for that matter a young person just starting out with low taxable income.
At the other end of the spectrum, those with good defined-benefit plans expecting to receive pensions and other income that could result in clawbacks from Old Age Security should also think twice about contributing to an RRSP. This is because having to take out RRSP funds beginning at age 71 on top of an OAS could result in what amounts to an extra 15% tax, or clawback, on the OAS as well as a forced bump into a higher tax bracket. Ouch. Double tax hit! Also, if you will be getting a severance benefit when you retire and don’t contribute to RRSPs over the years then you have built up room in your RRSP to put your severance pay in to avoid a big tax hit and gain more flexibility for financial planning. I wish I’d figured this out years ago as I am 2 years from retirement with maxed out RRSPs. If I knew then what I know now I would have paid off my mortgage faster, built up the emergency fund, invested outside of the RRSP – TFSAs are awesome for this – and if I did contribute to RRSPs I would have contributed just enough to bring me into the next lower tax bracket. Now I must figure out how to strategically move funds out of the RRSP into non-registered investments before my 64th birthday – in other words before the OAS and dreaded clawbacks. Not a bad problem to have but no body likes to give away their hard earned funds to the tax department!

]]> By: Money Coach http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16682 Money Coach Thu, 10 Sep 2009 02:39:54 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16682 Great posts. Diana - You don't need a lot of money to purchase real estate, the key is having specialists working for you to make the deal happen. The last property I purchased cost me $350 out of pocket for the home inspection, not because I'm special but because I have a team of professionals that work in real estate. Yes, a $190,000 home where I receive $1275 per month which covers the mortgage, property tax and property manager and leaves extra in the account for maintenance only cost me $350 out of pocket. Ann - First off, congratulations on being able to maximize your RRSP's, not too many people can do that. The only point I was trying to stress in my original post was for people to diversify their savings and talk to a specialist to determine what option makes sense for their current needs and future plans. Great posts.

Diana – You don’t need a lot of money to purchase real estate, the key is having specialists working for you to make the deal happen. The last property I purchased cost me $350 out of pocket for the home inspection, not because I’m special but because I have a team of professionals that work in real estate. Yes, a $190,000 home where I receive $1275 per month which covers the mortgage, property tax and property manager and leaves extra in the account for maintenance only cost me $350 out of pocket.

Ann – First off, congratulations on being able to maximize your RRSP’s, not too many people can do that. The only point I was trying to stress in my original post was for people to diversify their savings and talk to a specialist to determine what option makes sense for their current needs and future plans.

]]> By: Ann http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16678 Ann Wed, 09 Sep 2009 23:49:01 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16678 @ Money Coach - By maximizing my RRSPs today, I'm saying the future is unpredictable and it's best to be prepared by having a big, fat cushion. And don't assume that people who maximize their RRSPs aren't also maxing out their TFSA contributions...and a healthy real estate portfolio. Sometimes it's not one or the other. @ Money Coach – By maximizing my RRSPs today, I’m saying the future is unpredictable and it’s best to be prepared by having a big, fat cushion.

And don’t assume that people who maximize their RRSPs aren’t also maxing out their TFSA contributions…and a healthy real estate portfolio. Sometimes it’s not one or the other.

]]> By: Diana http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16675 Diana Wed, 09 Sep 2009 18:33:07 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16675 Money Coach, funny to think that if people don't have enough to put into RRSPs that they would really have enough for a real estate portfolio. Money Coach, funny to think that if people don’t have enough to put into RRSPs that they would really have enough for a real estate portfolio.

]]> By: Kerry http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16671 Kerry Wed, 09 Sep 2009 14:02:07 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16671 *pol - we don't go near maxing our rrsps either. I think if you maxed them for your whole working career you might end up oversaving in that vehicle. This is just from the calculations from my financial adviser and our future projected income requirements. Unfortunately we actually put our rrsp contribs on hold in August and probably for the rest of the year since I had a reduction in work due to 'the recession'. It feels pretty bad to do that, after paying regularly for so many years but it will hopefully be temporary. We have no emergency fund and I wanted the extra cash to start that. *pol – we don’t go near maxing our rrsps either. I think if you maxed them for your whole working career you might end up oversaving in that vehicle. This is just from the calculations from my financial adviser and our future projected income requirements.

Unfortunately we actually put our rrsp contribs on hold in August and probably for the rest of the year since I had a reduction in work due to ‘the recession’. It feels pretty bad to do that, after paying regularly for so many years but it will hopefully be temporary. We have no emergency fund and I wanted the extra cash to start that.

]]> By: Jessie http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16670 Jessie Wed, 09 Sep 2009 14:00:51 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16670 Irene - You will be taxed on the money you withdraw from RRSP's - not 'clawed back'. Keep contributing, or saving money somewhere! Irene – You will be taxed on the money you withdraw from RRSP’s – not ‘clawed back’. Keep contributing, or saving money somewhere!

]]> By: Irene http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16656 Irene Wed, 09 Sep 2009 03:26:07 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16656 I have 8 years to retirement, have just discovered your show and this blog, and am in a quandry about RRSPs. I stayed at home with kids, so have only been working for the last 15 years - pension will be pretty small. I don't have a lot in rrsps, and stopped contributing to this awhile ago as I read somewhere that for people like me, with fairly low income, that in retirement, if I withdraw just a bit from rrsps, it will be clawed back. Am I misinformed? I have 8 years to retirement, have just discovered your show and this blog, and am in a quandry about RRSPs. I stayed at home with kids, so have only been working for the last 15 years – pension will be pretty small. I don’t have a lot in rrsps, and stopped contributing to this awhile ago as I read somewhere that for people like me, with fairly low income, that in retirement, if I withdraw just a bit from rrsps, it will be clawed back. Am I misinformed?

]]> By: *pol http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16654 *pol Wed, 09 Sep 2009 02:37:45 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16654 oh boy.... I am feeling really deprived right now. No pension, no hope of maxing out the RRSP contributions (if we want a life).... but on the bright side no debt (except the mortgage) and we DO have some room for a life while the kids are still young. I know I am robbing my future to live this way and it does stress me out. HOPEFULLY we are putting enough away -- at least it's something, right? The jon with a pension seems like a dream to me, neither my husband nor myself nor anyone in our direct circle of family and friends has this option... you people are so fortunate to have that perk! oh boy….

I am feeling really deprived right now. No pension, no hope of maxing out the RRSP contributions (if we want a life)…. but on the bright side no debt (except the mortgage) and we DO have some room for a life while the kids are still young. I know I am robbing my future to live this way and it does stress me out. HOPEFULLY we are putting enough away — at least it’s something, right?

The jon with a pension seems like a dream to me, neither my husband nor myself nor anyone in our direct circle of family and friends has this option… you people are so fortunate to have that perk!

]]> By: Money Coach http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16653 Money Coach Wed, 09 Sep 2009 02:11:18 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16653 Let's play devils advocate for a moment - I'm reading that a lot of people maximize there RRSP's contributions each year because they are overcautious, etc. By maximizing your RRSP's today are you really saying that your income is high and you're paying too much tax, so you would like to make an RRSP contribution in order to minimize your taxes payable? Are you also saying that you hope to withdraw your compounded tax free investment during your retirement years when your income and tax situation are relatively lower? Are you really saying, because this is what I'm hearing, is that you're planning to be worse off at retirement than you are today. Think about it, you're planning to be at a lower tax bracket at retirement than you are at today, does that not mean a lower income? I'm not sure about everybody else, but I'm planning a retirement where my income is equal and/or greater to my income today. My goal is to build wealth, not set myself up for less in the future. Just a fun little spin that you can put on RRSP's to show that it's important to be diversified (RRSP's, non-registered portfolio, tax free savings account, real estate, etc.). Don't get caught up in the RRSP hype, you may end up like so many people I've seen where they have all of their investments in a registered investment which opens the flood gate to estate, taxation and income issues in the future. Find a balance between all of your investment options through a viable financial plan. Let’s play devils advocate for a moment –

I’m reading that a lot of people maximize there RRSP’s contributions each year because they are overcautious, etc. By maximizing your RRSP’s today are you really saying that your income is high and you’re paying too much tax, so you would like to make an RRSP contribution in order to minimize your taxes payable? Are you also saying that you hope to withdraw your compounded tax free investment during your retirement years when your income and tax situation are relatively lower? Are you really saying, because this is what I’m hearing, is that you’re planning to be worse off at retirement than you are today. Think about it, you’re planning to be at a lower tax bracket at retirement than you are at today, does that not mean a lower income?

I’m not sure about everybody else, but I’m planning a retirement where my income is equal and/or greater to my income today. My goal is to build wealth, not set myself up for less in the future.

Just a fun little spin that you can put on RRSP’s to show that it’s important to be diversified (RRSP’s, non-registered portfolio, tax free savings account, real estate, etc.).

Don’t get caught up in the RRSP hype, you may end up like so many people I’ve seen where they have all of their investments in a registered investment which opens the flood gate to estate, taxation and income issues in the future. Find a balance between all of your investment options through a viable financial plan.

]]> By: Ann http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16651 Ann Wed, 09 Sep 2009 00:30:30 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16651 Maybe I'm overcautious, but I max out my RRSPs even though I have a pretty decent pension plan. It's hard to predict what's going to happen in the next three decades. Maybe I’m overcautious, but I max out my RRSPs even though I have a pretty decent pension plan. It’s hard to predict what’s going to happen in the next three decades.

]]> By: Money Coach http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16646 Money Coach Tue, 08 Sep 2009 16:51:37 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16646 I think the key to understanding what investment vehicle you should be using depends on many factors to name a few your marginal tax rate, purpose for saving and incentives. The general public talks a lot about RRSP's but forget the benefits that can be had using non-registered investments and even the new Tax Free Savings Account. Understand the difference between tax sheltered and non-tax sheltered investing, the impact of taxes and you will get a better sense as to which vehicle would work best for your situation. Do I have RRSP's, yes I do along with a Defined Benefit Plan, non-registered margin account, a tax free savings account and a real estate portfolio, but we're all different so explore the option(s) that will best meet your present and future needs. I think the key to understanding what investment vehicle you should be using depends on many factors to name a few your marginal tax rate, purpose for saving and incentives. The general public talks a lot about RRSP’s but forget the benefits that can be had using non-registered investments and even the new Tax Free Savings Account. Understand the difference between tax sheltered and non-tax sheltered investing, the impact of taxes and you will get a better sense as to which vehicle would work best for your situation. Do I have RRSP’s, yes I do along with a Defined Benefit Plan, non-registered margin account, a tax free savings account and a real estate portfolio, but we’re all different so explore the option(s) that will best meet your present and future needs.

]]> By: IRA Rollover Blogg http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16643 IRA Rollover Blogg Tue, 08 Sep 2009 16:17:21 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16643 [...] Pensions & RRSPs « gailvazoxlade.com [...] [...] Pensions & RRSPs « gailvazoxlade.com [...]

]]> By: Didi http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16640 Didi Tue, 08 Sep 2009 15:35:31 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16640 We're fortunate that my husband has a good (government) pension plan.. however, I'm self-employed so this year I'm maxing TFSA's and have my own RRSP's and RESP's. I wish I could max out the RRSP's as well but as my salary grows I keep putting more in... I'm pretty happy with how it's all going now. A few years ago I wasn't saving a thing and felt very uneasy... luckily I have a long way to go before retirement and with having my own business from home I might just keep working well past retirement age but I figure you just never know what's going to happen... better to be safe :) We’re fortunate that my husband has a good (government) pension plan.. however, I’m self-employed so this year I’m maxing TFSA’s and have my own RRSP’s and RESP’s. I wish I could max out the RRSP’s as well but as my salary grows I keep putting more in… I’m pretty happy with how it’s all going now. A few years ago I wasn’t saving a thing and felt very uneasy… luckily I have a long way to go before retirement and with having my own business from home I might just keep working well past retirement age but I figure you just never know what’s going to happen… better to be safe :)

]]> By: Jessie http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16639 Jessie Tue, 08 Sep 2009 15:08:05 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16639 A great post Gail! I am 25 and won't be able to contribute to my company pension plan for another year (October 2010) once I start contributing, the companies portion is not vested for another two years. So if in the next three years I get the proverbial 'boot' from my current employment, I'll lose any company contributions. For that reason, I plan on contributing as much as I can to RRSP's until their portion is vested - that way I have a back up plan just in case. We have a defined contribution PP, that is the employee and the employer each contribute 5%. A great post Gail!

I am 25 and won’t be able to contribute to my company pension plan for another year (October 2010) once I start contributing, the companies portion is not vested for another two years.

So if in the next three years I get the proverbial ‘boot’ from my current employment, I’ll lose any company contributions. For that reason, I plan on contributing as much as I can to RRSP’s until their portion is vested – that way I have a back up plan just in case.

We have a defined contribution PP, that is the employee and the employer each contribute 5%.

]]> By: Frugalistas (frugalistas.blogspot.com) http://gailvazoxlade.com/blog/archives/874/comment-page-1#comment-16638 Frugalistas (frugalistas.blogspot.com) Tue, 08 Sep 2009 14:13:43 +0000 http://gailvazoxlade.com/blog/?p=874#comment-16638 Chronic pension underfunding could spell the end of the current format of pension plans. Plan for the worst, hope for the best. If you read on the internet, there is a shortfall in pension funding everywhere that is being made worse by the economic crisis. Chronic pension underfunding could spell the end of the current format of pension plans. Plan for the worst, hope for the best.

If you read on the internet, there is a shortfall in pension funding everywhere that is being made worse by the economic crisis.

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