Investing

Defined Benefit Plan - Part of Income at retirement ?

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[OP]
Sr. Member
Dec 27, 2005
551 posts
71 upvotes
Toronto, ON

Defined Benefit Plan - Part of Income at retirement ?

My wife works for a hospital and has a pension plan HOOPP ( The Healthcare of Ontario Pension Plan). Now when we are budgeting to invest money, how should we invest . Would the below order make sense just thinking about Taxes at retirement

1. Invest in Both our TFSA
2. Invest in My RRSP first
3. Invest in Wife's RRSP

My above logic is based on , on retirement wife will get paid by her Pension , if we have alot in her RRSP's , at retirement this will make her income go higher ( PENSION + RRSP ). I'm not certain if her defined benefit us counted as her income at retirement or we already paid taxes on it ?

would it make sense any other way ?

Let me know if anyone wants any clarification
35 replies
Deal Fanatic
Nov 24, 2013
6147 posts
2904 upvotes
Kingston, ON
paf wrote: My wife works for a hospital and has a pension plan HOOPP ( The Healthcare of Ontario Pension Plan). Now when we are budgeting to invest money, how should we invest . Would the below order make sense just thinking about Taxes at retirement

1. Invest in Both our TFSA
2. Invest in My RRSP first
3. Invest in Wife's RRSP

My above logic is based on , on retirement wife will get paid by her Pension , if we have alot in her RRSP's , at retirement this will make her income go higher ( PENSION + RRSP ). I'm not certain if her defined benefit us counted as her income at retirement or we already paid taxes on it ?

would it make sense any other way ?

Let me know if anyone wants any clarification
RPP contributions she makes while working show up in a box on her T4 and are deducted from her Gross Income in arriving at her Net/Taxable income. In effect, this defers tax just like RRSP. She contributes pre-tax while working, and her pension is taxed at withdrawal.

RPP contributions (and the employer's portion in the Pension Adjustment box on her T4) reduce her RRSP contribution room, so she may not have a lot of contribution room left.

For the rest of RRSP planning, the biggest factors are your respective marginal brackets now, what age you expect to retire, and whether there's a big age difference between you. Once you're both 65+, pension income and RRIF income can all be split, so you don't necessarily have to worry about whose name the income is in. Pre-65 (say she draws a pension from 55-65) her pension income can be split, but not RRSP withdrawals, so it matters whose name they're in. You've got to weigh who is at the higher marginal rate now vs when it'll be withdrawn.

It may make sense to contribute RRSP before TFSA if your incomes are high. In Ontario, marginal rate ramps up rapidly between $74K and $92K in taxable income, so it may be worthwhile to contribute to RRSP if you're in those ranges or higher, assuming your average retirement income will be under that.
Deal Addict
Mar 10, 2011
2236 posts
347 upvotes
Toronto
I read an article recently ( dont remember where) but it was mentioned that the federal government is looking at eliminating seniors pension income splitting among other things. You didnt mention anything about your retirement savings, but if your wife is going to have a significantly higher income than you in retirement, then a spousal RSP in your name that she contributes to might make sense thus still allowing income splitting in retirement even if the pension income splitting officially goes away.
[OP]
Sr. Member
Dec 27, 2005
551 posts
71 upvotes
Toronto, ON
Mike15 wrote: RPP contributions she makes while working show up in a box on her T4 and are deducted from her Gross Income in arriving at her Net/Taxable income. In effect, this defers tax just like RRSP. She contributes pre-tax while working, and her pension is taxed at withdrawal.

RPP contributions (and the employer's portion in the Pension Adjustment box on her T4) reduce her RRSP contribution room, so she may not have a lot of contribution room left.

For the rest of RRSP planning, the biggest factors are your respective marginal brackets now, what age you expect to retire, and whether there's a big age difference between you. Once you're both 65+, pension income and RRIF income can all be split, so you don't necessarily have to worry about whose name the income is in. Pre-65 (say she draws a pension from 55-65) her pension income can be split, but not RRSP withdrawals, so it matters whose name they're in. You've got to weigh who is at the higher marginal rate now vs when it'll be withdrawn.

It may make sense to contribute RRSP before TFSA if your incomes are high. In Ontario, marginal rate ramps up rapidly between $74K and $92K in taxable income, so it may be worthwhile to contribute to RRSP if you're in those ranges or higher, assuming your average retirement income will be under that.
Biff88 wrote: I read an article recently ( dont remember where) but it was mentioned that the federal government is looking at eliminating seniors pension income splitting among other things. You didnt mention anything about your retirement savings, but if your wife is going to have a significantly higher income than you in retirement, then a spousal RSP in your name that she contributes to might make sense thus still allowing income splitting in retirement even if the pension income splitting officially goes away.
Thanks Both

I make around 70k and wife makes around 75k .

We are both 31. We didn't have anything for retirement besides the DB she has been contributing to for a about 9 years working fulltime. Now, we've to put aside close to 2K a month for TFSA/RRSP .

What do you guys suggest we do ? Sorry new to all this world here!
Deal Fanatic
Nov 24, 2013
6147 posts
2904 upvotes
Kingston, ON
paf wrote: Thanks Both

I make around 70k and wife makes around 75k .

We are both 31. We didn't have anything for retirement besides the DB she has been contributing to for a about 9 years working fulltime. Now, we've to put aside close to 2K a month for TFSA/RRSP .

What do you guys suggest we do ? Sorry new to all this world here!
Sounds like your #1 priority should be to max your TFSAs. Since you're both just starting out with investing, it may take a while to max out your contributions ($104,000, potentially, between the two of you). I'd start there, and then when you're maxed, look into RRSPs (or sooner if your incomes go up).

Next question is how to invest your contributions. A good resource to start is here: http://canadiancouchpotato.com/couch-potato-faq/ if you're new to investing. You can probably be a little agressive with your portfolio mix, as HOOPP is a good, well-funded pension that you don't have much to worry about.
[OP]
Sr. Member
Dec 27, 2005
551 posts
71 upvotes
Toronto, ON
Thanks for the prompt response! Appreciate your input.

I was thinking the same to be a little more aggressive . Would you recommend ETFs vs TD eseries .

With ETFs, I will likely contribute every 3 months ( thinking of the trading fees ) Vs TD E Series , I can contribute Monthly without fees


Mike15 wrote: Sounds like your #1 priority should be to max your TFSAs. Since you're both just starting out with investing, it may take a while to max out your contributions ($104,000, potentially, between the two of you). I'd start there, and then when you're maxed, look into RRSPs (or sooner if your incomes go up).

Next question is how to invest your contributions. A good resource to start is here: http://canadiancouchpotato.com/couch-potato-faq/ if you're new to investing. You can probably be a little agressive with your portfolio mix, as HOOPP is a good, well-funded pension that you don't have much to worry about.
Deal Fanatic
Nov 24, 2013
6147 posts
2904 upvotes
Kingston, ON
paf wrote: Thanks for the prompt response! Appreciate your input.

I was thinking the same to be a little more aggressive . Would you recommend ETFs vs TD eseries .

With ETFs, I will likely contribute every 3 months ( thinking of the trading fees ) Vs TD E Series , I can contribute Monthly without fees
You could do Questrade with no-fee ETF purchases, or do monthly contributions to e-Series with TDDI and then sell chunks of that to buy ETFs.
Deal Addict
User avatar
Feb 1, 2012
1364 posts
1815 upvotes
Thunder Bay, ON
paf wrote: What do you guys suggest we do ? Sorry new to all this world here!
Finiki, the Canadian Financial Wiki is a great resource for Canadian investors:
http://www.finiki.org/
http://www.finiki.org/wiki/Getting_started


paf wrote: Thanks for the prompt response! Appreciate your input.

I was thinking the same to be a little more aggressive . Would you recommend ETFs vs TD eseries .

With ETFs, I will likely contribute every 3 months ( thinking of the trading fees ) Vs TD E Series , I can contribute Monthly without fees
ETFs typically have lower fees so over the long term performance should be slightly better, which will compound over the years. But mutual funds are somewhat simpler, with no fees to buy or sell, ability to buy partial shares which will minimize cash buildup in your accounts, automated monthly purchases and slightly simpler tax reporting.

One option is to have your monthly contributions into eSeries or a low-cost balanced mutual fund like TDB965, then periodically sell the mutual funds and buy ETFs.

See here for more info:
http://www.finiki.org/wiki/Simple_index ... or_ETFs.3F
http://www.finiki.org/wiki/Mutual_fund
http://www.finiki.org/wiki/Exchange-traded_fund
http://www.finiki.org/wiki/Simple_index ... portfolios
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
[OP]
Sr. Member
Dec 27, 2005
551 posts
71 upvotes
Toronto, ON
Deepwater wrote:
Finiki, the Canadian Financial Wiki is a great resource for Canadian investors:
http://www.finiki.org/
http://www.finiki.org/wiki/Getting_started





ETFs typically have lower fees so over the long term performance should be slightly better, which will compound over the years. But mutual funds are somewhat simpler, with no fees to buy or sell, ability to buy partial shares which will minimize cash buildup in your accounts, automated monthly purchases and slightly simpler tax reporting.

One option is to have your monthly contributions into eSeries or a low-cost balanced mutual fund like TDB965, then periodically sell the mutual funds and buy ETFs.

See here for more info:
http://www.finiki.org/wiki/Simple_index ... or_ETFs.3F
http://www.finiki.org/wiki/Mutual_fund
http://www.finiki.org/wiki/Exchange-traded_fund
http://www.finiki.org/wiki/Simple_index ... portfolios
Can I open. TDDI account and buy TD e series or do I need to open a TD Mutual account?
Deal Addict
User avatar
Feb 1, 2012
1364 posts
1815 upvotes
Thunder Bay, ON
Yes you can purchase eSeries funds in TDDI. No commission to buy, and no cost to sell as long as you hold >30 days.

Make sure you consider that TDDI has quarterly maintenance fees unless your household has assets in TDDI of at least $15k.
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
Deal Addict
Mar 10, 2011
2236 posts
347 upvotes
Toronto
paf wrote: Thanks Both

I make around 70k and wife makes around 75k .

We are both 31. We didn't have anything for retirement besides the DB she has been contributing to for a about 9 years working fulltime. Now, we've to put aside close to 2K a month for TFSA/RRSP .

What do you guys suggest we do ? Sorry new to all this world here!
It would be good to contribute to both TFSA and some into an RSP if you can once your salaries get a little higher. Starting at 74k, the tax brackets get smaller and the marginal tax rates get higher more quickly. A few good salary increases or a promotion with the accompanying salary increase will make your income tax bite higher. So you're looking at 30% + refunds on RSP contributions which you can funnel into a TFSA as well.
[OP]
Sr. Member
Dec 27, 2005
551 posts
71 upvotes
Toronto, ON
I was playing with the RRSP and looking if we were to invest close to our contribution limit left after RPP, we would like back as a refund close 3000$ back on 10000. Which is 30 percent return which can be reinvested in TFSA or Whatever

But I can't decide f we should do that or TFSA as I will eventually pay taxes on the RRSP.

If someone can give an example to explain it would be helpful
Deal Fanatic
Nov 24, 2013
6147 posts
2904 upvotes
Kingston, ON
paf wrote: I was playing with the RRSP and looking if we were to invest close to our contribution limit left after RPP, we would like back as a refund close 3000$ back on 10000. Which is 30 percent return which can be reinvested in TFSA or Whatever

But I can't decide f we should do that or TFSA as I will eventually pay taxes on the RRSP.

If someone can give an example to explain it would be helpful
You & your spouse are currently in the broad 29.65% tax bracket (20.5% federal, 9.15% Ontario) which for 2017 runs from $46K taxable income (so net of RPP/RRSP contributions) to $74K. If you contribute to your RRSP, get a 29.65% refund, and reinvest the refund, and then when you withdraw from the RRSP 20, 30, or 40 years from now, you're still in that broad 29.65% bracket, then your after-tax return on the investment will be the same as with a TFSA.

The problem is 30 years is a long time. The tax code can change a lot in that intervening time. Hindsight being 20:20, many brackets have gone lower in the last 30 years, but some have also been added to at higher income levels. If you end up increasing your income over your career, or your investments are really successful, your minimum withdrawals could end up putting you in a higher bracket (or higher effective bracket, like OAS clawback on old age income >$72K). No one knows for sure how it'll fall for them for that far out.

If you're in a ~40% rate income bracket now, which in ON starts around $90K taxable income, your odds increase of withdrawing at a lower rate in retirement, making RRSP contribution more enticing. Or you can just max your TFSA first and not worry about trying to crystal-ball the unknown.

Retirement planning in general seems to be a moving target. TFSAs didn't exist 10 years ago. Who knows what they'll look like 10 or 20 years from now (lifetime cap?). Will OAS still exist in 20-30 years? Will OAS be means-tested for TFSA withdrawals? Will income tax decrease over time, in lieu of greater emphasis on consumption or even carbon tax? Will interest rates rise, making annuities viable again? It's all up in the air.

Right now, you and your spouse are a promotion or two away from being in a notably higher tax bracket where you can get a bigger refund on the same RRSP contribution room. That gives a potential benefit to holding off on RRSP, with minimal downside (because you can use TFSA while you wait and see).
Deal Fanatic
Feb 1, 2006
9609 posts
818 upvotes
Muskoka
My wife is also a HOOPP member, and I am private sector, but we're 10 years older. One problem you may not have noticed yet is that she will have very limited RRSP room, as the DB pension contributions from both employee/employer reduce it.

You should make a game plan before deciding on your course of action. If she plans to work till full DB is earned, then start taking it, then RRSP's withdrawals are going to be killed with tax. Our plan is to stop working well before starting pension, and to burn through RRSP's while we have no other income, which is a great way to get RRSP's out with very minimal tax. If she works another 20 years, her pension at 60/65 will be pretty large, likely enough to live decently on with no other savings.
[OP]
Sr. Member
Dec 27, 2005
551 posts
71 upvotes
Toronto, ON
Mike15 wrote: You & your spouse are currently in the broad 29.65% tax bracket (20.5% federal, 9.15% Ontario) which for 2017 runs from $46K taxable income (so net of RPP/RRSP contributions) to $74K. If you contribute to your RRSP, get a 29.65% refund, and reinvest the refund, and then when you withdraw from the RRSP 20, 30, or 40 years from now, you're still in that broad 29.65% bracket, then your after-tax return on the investment will be the same as with a TFSA.

The problem is 30 years is a long time. The tax code can change a lot in that intervening time. Hindsight being 20:20, many brackets have gone lower in the last 30 years, but some have also been added to at higher income levels. If you end up increasing your income over your career, or your investments are really successful, your minimum withdrawals could end up putting you in a higher bracket (or higher effective bracket, like OAS clawback on old age income >$72K). No one knows for sure how it'll fall for them for that far out.

If you're in a ~40% rate income bracket now, which in ON starts around $90K taxable income, your odds increase of withdrawing at a lower rate in retirement, making RRSP contribution more enticing. Or you can just max your TFSA first and not worry about trying to crystal-ball the unknown.

Retirement planning in general seems to be a moving target. TFSAs didn't exist 10 years ago. Who knows what they'll look like 10 or 20 years from now (lifetime cap?). Will OAS still exist in 20-30 years? Will OAS be means-tested for TFSA withdrawals? Will income tax decrease over time, in lieu of greater emphasis on consumption or even carbon tax? Will interest rates rise, making annuities viable again? It's all up in the air.

Right now, you and your spouse are a promotion or two away from being in a notably higher tax bracket where you can get a bigger refund on the same RRSP contribution room. That gives a potential benefit to holding off on RRSP, with minimal downside (because you can use TFSA while you wait and see).
Thanks alot for the detailed explanation!

This really helped me clarify the questions I had !

I will invest in TSFAs unless a promotion comes out way !

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