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.
Posted by: Roberto | Feb 18, 2022 10:56:26 AM
Is good to know that. I'll glad to know more about al kind of thing that to be affecting the senior economic in their future.
Posted by: SP | Feb 18, 2022 7:45:37 PM
Who might RRSP's benefit nowadays?
People who invest in stocks (Nortel/Chrysler/Eron/Tyco) see their returns evaporate.
People who put their money in Banks will see their savings evaporate (see "quantitative easing").
I am really at a loss to see who would benefit from RRSP's in this climate.
Posted by: Rhonda Sherwood, CFP, FMA | Feb 20, 2022 1:06:26 AM
As a financial advisor I am often confronted by people who are quickly approaching retirement and are now realizing that they just didn't save enough. Too little, too late. They focused on funding their mortgage or lifestyle or thought they would be with a company long enough to benefit from a decent pension. Then 55 or 60 hits and they have little to no cash put aside and a small, if any, company pension. So unless they sell their home retirement looks pretty bleak.
What I like about RRSPs besides the obvious tax rebate and the benefit of compound growth is that it is a vehicle that discourages people from making unnecessary withdrawals until they are in a lower tax bracket. Or put another way, if you save money in a regular investment account your more apt to touching the money as there are no penalties on withdraws. While if you withdraw your RRSP you have to claim the full amount as income. So in my experience, people tend to avoid taking money from their RRSPs. If you set up a monthly savings plan, start young and be consistent you could potentially have quit a nest egg to fund lifestyle in your retirement years.