Personal Finance

General retirement question

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  • Nov 4th, 2019 11:17 am
[OP]
Deal Addict
Jan 29, 2010
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General retirement question

If my household income is currently north of $200k and we will probably work in Canada for 30 years, would it most likely makes sense to try to maximum RRSP contributions every year?

I'm thinking given we have to make maximum contributions to CPP every year, my CPP income would probably be high when it kicks in. Combined with OAS, that would most certainly make GIS impossible even if I am able to make sure I have no other income (eg. if I were to withdraw all RRSP before 65 or just not contribute to RRSP throughout my life). That means there's probably no way I can take advantage of GIS at all.

In that case, I'm thinking every year, I should just max out TFSA first, then RRSP and then whatever extra money to investment/pay off mortgage. It would probably not make sense for me to use my extra money each year to pay off my mortgage sooner given the low interest rate and high potential savings on tax if I use RRSP to defer taxation.

Is my thinking on the right track or did I miss anything?
101 replies
Deal Addict
Mar 10, 2011
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Forget about GIS, that is for low income folks. Your family is making very good income now and you have many working years ahead of you.
With 200k income, you should be able to maximize your TFSAs and also your RSP contributions since you need the tax deductions.
Maxing out your RSPs over 30 years will give you a retirement nest egg that will provide much more income in retirement than GIS would ever provide you. Since your family income is so good, I would aim high, not low.
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Nov 18, 2007
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"...my CPP income would probably be high when it kicks in." -- That there is hilarious.

If we had the choice of not making contributions to CPP, I would take it in a heartbeat.

Seems like you should have enough cashflow to max both TFSAs and RRSPs. But if not, TFSAs first.

If one spouse makes far less than the other, make sure you use a Spousal RRSP.
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Nov 13, 2013
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fastlayne wrote: "...my CPP income would probably be high when it kicks in." -- That there is hilarious.

If we had the choice of not making contributions to CPP, I would take it in a heartbeat.

Seems like you should have enough cashflow to max both TFSAs and RRSPs. But if not, TFSAs first.

If one spouse makes far less than the other, make sure you use a Spousal RRSP.
CPP has posted strong returns. Some argue they have been lucky but after expenses they have beat any other remotely conservative portfolio. Of course your actual payback depends on your like expectancy. It is discriminatory against men right off the bat for example.

With 200k income and no pension wouldn't maxing out RRSPs before TFSA make more sense? The tax deduction now will be significant and they will be in much lower tax bracket down the road.
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Oct 4, 2009
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200k household income and worried about missing out on GIS. :facepalm:
Deal Guru
Dec 11, 2008
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Depends if you have a pension or not.

Usually it is TFSA and then RRSP.
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Mar 10, 2011
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Forgot to mention, its not a good idea to plan around OAS or GIS. Many G8 countries are cutting back on it as they’ve raised the minimum retirement age to 67 or above. It happened here too with the previous government but was brought back down to 65, but I don't expect it to stay there for that long. Governments expect the people to save for their own retirement and not to expect handouts. By the time you retire OAS/GIS may not exist in the same form that it is now.
Last edited by Biff88 on Oct 25th, 2019 10:43 am, edited 1 time in total.
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Jan 15, 2017
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Depends on what you view as high CPP when you retire. The maximum CPP benefit right now is $1154 a month. The average is $640. It is really difficult to get the maximum CPP. To qualify for the maximum, you have to essentially have earned maximum earnings for 39 years. As you will have been working for nearly 30 years, don't count on the maximum.
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Mar 3, 2009
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speedyforme wrote: Usually it is TFSA and then RRSP.
I'm curious why you think this. I'm not saying that you are incorrect, I am just curious.

To be, the OP would be in probably the highest income tax bracket right now and his income in retirement would most likely be much lower.

Would it not make sense to get all the tax back he can now as he will pay at a lower tax rate when he retires and draws from the RRSP?

I would have thought max out RRSP first, then TFSA?
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dr_torch wrote: I'm curious why you think this. I'm not saying that you are incorrect, I am just curious.

To be, the OP would be in probably the highest income tax bracket right now and his income in retirement would most likely be much lower.

Would it not make sense to get all the tax back he can now as he will pay at a lower tax rate when he retires and draws from the RRSP?

I would have thought max out RRSP first, then TFSA?
No I agree with you, that is why in general it is TFSA and then RRSP.

I guess my only reservation with RRSP is future potential changes, tax rates and other things.
[OP]
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Jan 29, 2010
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speedyforme wrote: Depends if you have a pension or not.

Usually it is TFSA and then RRSP.
Thanks all.

We both do not have pensions and make similar earnings. In that case, does TFSA before RRSP still make sense?

Given that unused TFSA contribution limits are bought-forward each year while RRSP contribution limits are not, perhaps I should max out RRSP before TFSA? We are currently able to max out every year, but there could be some years down the road where we won't be able to.
Deal Guru
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jillaryit wrote: Thanks all.

We both do not have pensions and make similar earnings. In that case, does TFSA before RRSP still make sense?

Given that unused TFSA contribution limits are bought-forward each year while RRSP contribution limits are not, perhaps I should max out RRSP before TFSA? We are currently able to max out every year, but there could be some years down the road where we won't be able to.
In your case, RRSP is best first and then TFSA but preferrably both are maxed out.

But you might be wrong, RRSP contribution limit does carry forward. I have no maxed out my RRSP and the limit grows each year due my income.

The only play here is the tax bracket per person and see where it can be optimized but if you can max everything out for now, there is no real difference. :)
Sr. Member
Feb 9, 2018
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speedyforme wrote:
I guess my only reservation with RRSP is future potential changes, tax rates and other things.
Same can be true regarding TFSA.
[OP]
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Jan 29, 2010
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speedyforme wrote: In your case, RRSP is best first and then TFSA but preferrably both are maxed out.

But you might be wrong, RRSP contribution limit does carry forward. I have no maxed out my RRSP and the limit grows each year due my income.

The only play here is the tax bracket per person and see where it can be optimized but if you can max everything out for now, there is no real difference. :)
Oh yes, you're right - RRSP contribution limit does carry forward. Thanks
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Mar 10, 2018
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does it matter?
jillaryit wrote: If my household income is currently north of $200k and we will probably work in Canada for 30 years, would it most likely makes sense to try to maximum RRSP contributions every year?

I'm thinking given we have to make maximum contributions to CPP every year, my CPP income would probably be high when it kicks in. Combined with OAS, that would most certainly make GIS impossible even if I am able to make sure I have no other income (eg. if I were to withdraw all RRSP before 65 or just not contribute to RRSP throughout my life). That means there's probably no way I can take advantage of GIS at all.

In that case, I'm thinking every year, I should just max out TFSA first, then RRSP and then whatever extra money to investment/pay off mortgage. It would probably not make sense for me to use my extra money each year to pay off my mortgage sooner given the low interest rate and high potential savings on tax if I use RRSP to defer taxation.

Is my thinking on the right track or did I miss anything?
Yes. You started with IF. "It would probably not make sense for me" to comment.
Tried new coffee and doughnut. Found same old stale thing. expected bill of six bucks but it was 600 million. Big mistake so the guy said don't worry it is on the house. going back to McD.
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Jan 21, 2018
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Nobody can give a guaranteed answer on this, because it depends on several variables that you cannot foresee with certainty. You could follow a reasonable strategy, and have it end up being wrong because of something you didn't anticipate.

I would agree on TFSA before anything else, and I think most experts advise that. The TFSA is a no-brainer, tax-free investment with no restrictions, and the money is yours with no future deferred tax impact.

RRSP is trickier. You are deferring tax now, but you will pay it in the future. You are hoping to benefit from the extra returns on tax-free investment of money that you wouldn't have had otherwise (i.e., the money the government would have taken in taxes), and you are hoping that your income tax will be lower in the years that you take the money out than when you put it in. The latter may not be a good assumption, and there's no way to know that even 10 years in advance. You may be thinking that you will retire, and with no employment income and a senior's tax credit your income tax will be lower. But if you have made some good investments your investment income may be higher than ever, or maybe you want to or are forced to continue to work in retirement. In that case your income tax bracket may be even higher than when you put the money into the RRSP, making it a more questionable move. You can roll your RRSP into a RRIF to avoid paying tax all at once, or you can take out an annuity, or some blend of those strategies. That complicates the calculation as well.

Trying to plan these things 30 years ahead of time is not easy. That's the kind of time range in which the government may introduce or cancel or radically alter major things like CPP, RRSPs, or TFSAs. Remember that we didn't have any of those things at one time in the not-so-distant past. Heck, there are people alive today who remember when we didn't have income tax at all. There is no telling what a cash-strapped future government might do, or how a demographics shift over time might force new strategies.
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sunbat wrote: Same can be true regarding TFSA.
Possibly but I assume the government will play with RRSP way before TFSA IMO
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Jan 21, 2018
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speedyforme wrote: Possibly but I assume the government will play with RRSP way before TFSA IMO
Probably the opposite. TFSA is much newer than RRSP, and was a bit of a frivolous bribe to taxpayers from the government in 2009. The government has since reneged on their promise to increase it yearly, and has mused about canceling it at some point. They could do that with little impact because the money is yours already, so there would be no impact except to future plans.

For much longer the RRSP has been an integral part of the government's retirement strategy for Canadians who are not covered by an overly-generous government pension or one of the fast-disappearing private pensions. It would be an unmitigated disaster to Canadians to cancel the program, totally disruptive. That's not to say they won't mess with it, but cancellation or substantial change is probably out of the question.
Sr. Member
Nov 28, 2017
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jillaryit wrote: Thanks all.

We both do not have pensions and make similar earnings. In that case, does TFSA before RRSP still make sense?

Given that unused TFSA contribution limits are bought-forward each year while RRSP contribution limits are not, perhaps I should max out RRSP before TFSA? We are currently able to max out every year, but there could be some years down the road where we won't be able to.
Ok, so the benefit of TFSA first is that it is more flexible for withdrawals (this can also be a negative if you lack discipline), and there are also no forced withdrawals as you age. For this reason, I would favour TFSA unless I had a very specific reason to do RRSP first.


What specific reasons would there be? A company RRSP match from an employer. Or you are late in the saving game and don't expect a high retirement income, but do have a high current income (then you are deferring high rate taxes now, and will pay lower rates down the road).

It sounds like you are more likely to be in a high income now and in retirement situation, and if so, I would again do TFSA first for flexibility. But you should still have the cash for some significant RRSP saving once TFSA is topped up.
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jillaryit wrote: I'm thinking given we have to make maximum contributions to CPP every year, my CPP income would probably be high when it kicks in. Combined with OAS, that would most certainly make GIS impossible even if I am able to make sure I have no other income (eg. if I were to withdraw all RRSP before 65 or just not contribute to RRSP throughout my life). That means there's probably no way I can take advantage of GIS at all.
You're making $200K+ for 30 years or so and worried about losing out on GIS meant for poor seniors.... Seriously???

As for Debt, RRSP, TSFA there are too many factors to generalize any particular strategy: debt amount, current marginal tax rate, future marginal tax rate, your risk tolerance, investment returns expected, your investment horizon, flexibility if money needed in emergency. What works best for someone doesn't work for others, but I would certainly take advantage of the only tax-deferral option of RRSP contributions since having more money to invest from the start equals a lot more at the end due to compounding even if taxes are factored in.

I would max out on TSFA ($6,000 for 2019) as it is the most flexible as any amounts withdrawn can be recontributed back the following year while RRSP cannot. RRSPs are meant for retirement years.

Can't decide between debt and RRSP: contribute to an RRSP and use the tax savings to pay down the debt.

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