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February 18, 2022

RRSPs just not right for everyone

By Gordon Powers, Sympatico / MSN Finance

Despite the big push to the RRSP deadline, some people will probably be better off by not investing in an RRSP at all. And, for many others, they’re likely a low priority.

If you're in a higher tax bracket, then making the maximum RRSP contribution as early as possible should pay off. But for more modest earners straining under the weight of consumer debt, or lower-income seniors approaching retirement, the case is not as clear.

Ideally, you're looking to invest when you're facing a high marginal rate and then taking it out when you're subject to a lower tariff. If it looks like it's going to be the other way around, you're not going to be better off.

In truth, many investors in the lower tax brackets – roughly $37,000 or below in Ontario -- may have much less to gain from making an RRSP contribution than they think, particularly as they get older. Potential buyers who are less well off and expect to receive the Guaranteed Income Supplement – currently available to Canadians earning less than $15,672 a year -- should probably think twice about RRSPs, for instance.

For these low-income seniors, a bit of extra cash from RRSPs in retirement can actually erode their standard of living. That's because it counts against their GIS, which is reduced by 50 cents for every dollar of retirement income. And they'll likely lose out on other benefits like rent subsidies, drug benefits, and social aid programs as well.



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...