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February 21, 2022

You can have too much money in your RRSP

A few weeks ago, we published a lengthy article on why many Canadians should probably steer clear of RRSPS.

Rrsp If you've got a stack of high-interest credit card or auto debt, for instance, you're going to be much better off paying it down and deferring potential RRSP contributions until you work those loans off.

Even consumer loans at lower rates of interest can be troublesome and may be better eliminated before boosting your RRSP pool.

On the other hand, says Morningstar columnist Gail Bebee, if you’ve been contributing to RRSPs for a while, it may be time to slowdown or stop altogether.

So, how big is big enough? It all depends on your other sources of retirement income, she says, offering the following example.

For a retired person with an annual pension income of $35,000, adding the maximum OAS ($6,291) and CPP ($11,520) amounts would bring your income to $52,811, leaving a net income room of $14,857 before you reach the OAS clawback threshold where benefits are trimmed. 

But, to produce an income of $14,857, you’d only need RRIF assets in the $200,000 at age 71 – which is not an astronomical amount.

If you have a workplace pension plan or other sources of taxable income, directing some or all of your retirement savings to non-RRSP investments will offer more tax-planning options, Beebe maintains.

Is there a limit to how much you see yourself salting away in RRSPs? Or do you simply save as much as you can, where you can?

By Gordon Powers, MSN Money



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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...