Personal Finance

General retirement question

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  • Nov 4th, 2019 11:17 am
[OP]
Sr. Member
Jan 29, 2010
852 posts
592 upvotes
Toronto

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
2224 posts
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Toronto
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.
Deal Addict
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Nov 18, 2007
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Valleywood
"...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.
Deal Addict
Nov 13, 2013
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Ottawa
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.
Deal Addict
Oct 4, 2009
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Montreal
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.
Deal Addict
Mar 10, 2011
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Toronto
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.
Deal Addict
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.
Sr. Member
Mar 3, 2009
819 posts
297 upvotes
Ottawa, ON
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?
Deal Guru
Dec 11, 2008
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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]
Sr. Member
Jan 29, 2010
852 posts
592 upvotes
Toronto
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
Dec 11, 2008
10012 posts
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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. :)
Member
Feb 9, 2018
370 posts
264 upvotes
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]
Sr. Member
Jan 29, 2010
852 posts
592 upvotes
Toronto
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
Deal Addict
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Mar 10, 2018
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centre of universe
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.
I dont care about Ethics, morals, rules or laws. I will apologies only when I get caught.
I try not to apologies but sometimes do it. not because its right thing but it benefits me.
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