Canadians cutting back on RRSPs

[NAB]

Yes, I think spousal RRSP's have an important role to play too in many (but not all) circumstances.

A good summary here..

http://www.tdcanadatrust.com/planning/i ... pousal.jsp

Nab

[steven lloyd]

The facts are there are very few benefits to the RRSP. The only one I can think of is if employers contribute to it.

What about spousal RRSPs? My wife doesn't have an income and may never have one (or much of one). Wouldn't it be beneficial for me to put money into her RRSP? For myself, I'm never going to have an RRSP though.

If I'm not mistaken, they are no longer necessary as under new legislation income-splitting can still be accomplished after the fact (ie. when moving funds from an RRSP into RRIFs)

[steven lloyd]

While there are definitely a lot of unknowns when it comes to RRSP's, I still think they're a good investment for those in a high income bracket who don't anticipate having anywhere near as high of an income following retirement. There are many folks who worked in places like Fort McMurray during their earning years, pulling in salaries as high as $120,000 a year, who are not in defined benefit plans and who didn't save as much as they should have for their retirement. Consequently, their income could drop to as low as $35,000 or less a year once they retire (even when factoring in their RRSP income). Surely, for folks like that, you'd agree that deferring tax while in the higher bracket, so as to pay it while in the much lower bracket, makes financial sense.

They don't have to collapse their RRSP all at once, just take enough out every year to subsidize their income without putting them into a much higher tax bracket. If they retire at 65 they don't have to convert their RRSP into a RRIF until they're 71, and by then they'd have already depleted their RRSP a bit, so the mandatory withdrawals will be lower. But those 6 years between retirement and age 71, also provide a window of opportunity to keep an eye on interest rates so as try to choose the most favourable time to puchase an annuity if that is what they want to do. So RRSP's do have a role to play for folks whose income will drop considerably once they retire.

I agree with this. As I mentioned before, I think that using both registered savings and investment plans for tax deferral purposes (as you note moved into RRIFs to supplement income in low income earning years) combined with non-registered savings and investment plans (in a TFSA) provides the benefits of both strategies. Just my opinion, but it makes sense for me to defer some income tax, and to have more liquid savings and investment funds that can be accessed without tax penalty.

[Static]

You make really good points Merry, but no matter what tax bracket I was in, I would never touch an RRSP.

[NAB]

You make really good points Merry, but no matter what tax bracket I was in, I would never touch an RRSP.

It might help if you would explain why Static. I would think that the majority of people would certainly have RRSP's as an integral part of their retirement plan. Perhaps you have no plans to retire one day yet?

Nab

[Glacier]

I've decided against RRSPs. Instead, we have opened a joint marginal investment trading account. In this way, my wife can claim the income, and if (God forbid) we end up netting a capital loss, I can claim that... Or am I missing something here?

[Gilchy]

I've decided against RRSPs. Instead, we have opened a joint marginal investment trading account. In this way, my wife can claim the income, and if (God forbid) we end up netting a capital loss, I can claim that... Or am I missing something here?

Main thing missing in this strategy vs. an RRSP is the tax deductability. Not saying it's better or wrose, just different. You can still do the income splitting through RRSPs (spousal RRSP) over the long run, where you save on tax now, and your wife withdraws at her [assumed] lower tax rate later.

Have you maxed out your TFSAs?

[Glacier]

Have you maxed out your TFSAs?

You bet! Yes, you are right about the RRSP being a better choice if I'm paying less tax at retirement. However, I'm not convinced that will be the case. It could be at that time that OAS will be curtailed for people making over X amount. X being some a lot less than it is today.

You make really good points Merry, but no matter what tax bracket I was in, I would never touch an RRSP.

There is one RRSP contribution advantage you failed to mention - an increase in child tax benefit payments as a result of lower income.