Personal Finance

For those of you with a DB pension plan, do you still contribute to TFSA/RRSP?

  • Last Updated:
  • Jan 4th, 2021 4:47 pm
[OP]
Deal Addict
Jun 14, 2018
1096 posts
1256 upvotes

For those of you with a DB pension plan, do you still contribute to TFSA/RRSP?

Just wanted to get some perspectives here. I have a DB pension plan through work, and while retirement is still along ways away for me (25+ years), realistically I'm expecting this pension plan to be able to cover all of my expenses in retirement. This is not even taking into consideration CPP/OAS, which will add even more income when I retire.

For those of you with a DB plan through work, are you still contributing to your TFSA/RRSP every year? For now, I will still be maxing out my TFSA and will also contribute some to RRSP as well, but it feels like this is a bit much considering what I mentioned above. I'm thinking that money could be put to better use like upgrading my current condo (not necessary, but an option) or even just spending it to enjoy life more.

Looking to get some perspectives here of all age ranges, from those who are many years away from retirement (Will you be counting on just your DB plan and CPP/OAS to carry you in retirement?) to those who are currently in retirement (Do you find that your pension plan and CPP/OAS have been enough for your retirement that you didn't need to make other investments?).
52 replies
Deal Addict
Feb 4, 2003
2742 posts
818 upvotes
Great topic,

I also opted for the optional contribution that will add 0.75% to my DB making it 2%, simple formula is like 2% X best 5 years salary X years of service.

Since my spouse don't have a pension plan, it makes sense to start contributing to a spousal RRSP or just max out our TSFA?
Member
Apr 16, 2015
479 posts
686 upvotes
My spouse's pension + CPP will replace about 60% of his income, but I'm self-employed, so I'm maxing out TFSAs (since that $ can be withdrawn tax free) and then making some RRSP contributions on top of that. Unless you work for the federal government, I wouldn't depend entirely on the pension since alot can change in the next 25 years. Hubby's provincial gov't pension was reduced a few years ago, private companies can go bankrupt, you can change jobs, etc. A pension is a great thing to have but if you can afford to supplement it without depriving yourself too much, that's always a good idea.
[OP]
Deal Addict
Jun 14, 2018
1096 posts
1256 upvotes
catsoncoffee wrote: My spouse's pension + CPP will replace about 60% of his income, but I'm self-employed, so I'm maxing out TFSAs (since that $ can be withdrawn tax free) and then making some RRSP contributions on top of that. Unless you work for the federal government, I wouldn't depend entirely on the pension since alot can change in the next 25 years. Hubby's provincial gov't pension was reduced a few years ago, private companies can go bankrupt, you can change jobs, etc. A pension is a great thing to have but if you can afford to supplement it without depriving yourself too much, that's always a good idea.
Based on your current expenses, would your spouse's pension + CPP/OAS be able to cover those expenses in retirement? How do you decide on how much TFSA and RRSP you want to contribute every year?

I can definitely afford to supplement the pension with TFSA/RRSP contributions, but at the same time, I'm seeing if there's better balance to be had between saving for retirement and spending now to enjoy life a bit more. I don't want to go into retirement with 7-figures worth of assets that I will never have to touch because my pension + CPP/OAS was good enough.
Newbie
Dec 1, 2017
36 posts
33 upvotes
MarinersFanatik wrote: Just wanted to get some perspectives here. I have a DB pension plan through work, and while retirement is still along ways away for me (25+ years), realistically I'm expecting this pension plan to be able to cover all of my expenses in retirement. This is not even taking into consideration CPP/OAS, which will add even more income when I retire.

For those of you with a DB plan through work, are you still contributing to your TFSA/RRSP every year? For now, I will still be maxing out my TFSA and will also contribute some to RRSP as well, but it feels like this is a bit much considering what I mentioned above. I'm thinking that money could be put to better use like upgrading my current condo (not necessary, but an option) or even just spending it to enjoy life more.

Looking to get some perspectives here of all age ranges, from those who are many years away from retirement (Will you be counting on just your DB plan and CPP/OAS to carry you in retirement?) to those who are currently in retirement (Do you find that your pension plan and CPP/OAS have been enough for your retirement that you didn't need to make other investments?).
Not including your employers contributions, what % of your income is going into pension, TFSA, RRSP? That’s usually a good place to start when making save/spend decisions
[OP]
Deal Addict
Jun 14, 2018
1096 posts
1256 upvotes
Booyayyc wrote: Not including your employers contributions, what % of your income is going into pension, TFSA, RRSP? That’s usually a good place to start when making save/spend decisions
I'd say it's currently around 20-25%, but I find that number alone lacks meaningful context since it doesn't take into consideration what your spending habits are right now and what they will look like in retirement.
Deal Addict
Jan 15, 2017
4342 posts
3922 upvotes
Ottawa
Being so far from retirement, if you are concerned that your pension won't meet your living needs you are probably best to max out your TFSA first.

The challenge with contributing to your RRSP now is the difficulty estimating your retirement income so far out. An RRSP is a tax deferral plan based on the assumption that if you contribute now, your tax rate when you withdraw should be lower than when you contributed. It makes no sense to say contribute now with an income of $60k and then withdraw it later with an income of $95k. You are volunteering to pay more tax on your income.
Newbie
Dec 1, 2017
36 posts
33 upvotes
MarinersFanatik wrote: I'd say it's currently around 20-25%, but I find that number alone lacks meaningful context since it doesn't take into consideration what your spending habits are right now and what they will look like in retirement.
I’m 45, have a DC pension plus some of my own savings. I’m saving around 22% of my income as I only started saving about 3 years ago after a divorce so I have some catching up to do.

I would never depend solely on your DB. I think you could probably drop your savings to 15% and enjoy the rest and you’d be pretty safe. Always max out the TFSA regardless though. I’d put it in an S&P 500 index fund and leave it to build up that sweet sweet tax free growth.

You could always look to retire early as well. It’s good to have the kind of problems you have right now. Well done!
Sr. Member
Jan 13, 2016
567 posts
298 upvotes
Vancouver, BC
How do you know you will still be employed by that institution all that time? What if you get ill and have to quit?
Deal Addict
User avatar
Jan 4, 2009
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on the links
I'm already retired and have been collecting my DB pension for 5+ yrs now. While working I was usually in a high tax bracket, so it made sense to also contribute the maximum amount each year to my RRSP...although because of my PA amount, the contributions were small.

I'm now in the position of collapsing my RRSP (converted to an RRIF) and I hope to withdraw all of it before I start collecting OAS, otherwise my OAS will likely be partially clawed back. It helps that I can income split my pension with my spouse.
Deal Addict
Nov 8, 2005
2738 posts
1742 upvotes
My wife and I both have DB pensions and will be retiring in about 20 years. We save and put into our TFSA. Nothing is guaranteed in life and so long as you can save without depriving yourself then I believe we all should. Covid has taught us that we should all have a rainy day fund, no matter how "secure" your job is. Illness, emergency etc.
Deal Addict
Jan 2, 2015
1632 posts
638 upvotes
Toronto, ON
MarinersFanatik wrote: Just wanted to get some perspectives here. I have a DB pension plan through work, and while retirement is still along ways away for me (25+ years), realistically I'm expecting this pension plan to be able to cover all of my expenses in retirement. This is not even taking into consideration CPP/OAS, which will add even more income when I retire.

For those of you with a DB plan through work, are you still contributing to your TFSA/RRSP every year? For now, I will still be maxing out my TFSA and will also contribute some to RRSP as well, but it feels like this is a bit much considering what I mentioned above. I'm thinking that money could be put to better use like upgrading my current condo (not necessary, but an option) or even just spending it to enjoy life more.

Looking to get some perspectives here of all age ranges, from those who are many years away from retirement (Will you be counting on just your DB plan and CPP/OAS to carry you in retirement?) to those who are currently in retirement (Do you find that your pension plan and CPP/OAS have been enough for your retirement that you didn't need to make other investments?).
I'm in my early forties, and have a DB pension plan. Yay.

I contribute to TFSAs. I currently live very cheaply, so I'm aiming to fill up my TFSAs. At my current rate, it'll be full in 2022. (That just means I can only contribute the max every year from then on. Right now I'm contributing more than $6,000 per year because I have more room than that.)

I contribute to RRSPs when certain things come up. The biggest are union negotiations. The employer and union always take too long to negotiate, so we get back pay. When that happens, I calculate the taxable amount of back pay (which is usually more than the net I'm paid) and contribute that to my RRSP. The next are tax refunds; an equivalent amount of money is contributed to RRSPs, which can get very circular.

My job pays a decent but not great amount, and the DB pension is only a portion of that. I rent (buying property where I live is nearly impossible without equity), and rents will increase in the future. My aim is to use the pension to pay rent and so forth and use the TFSA as "having fun" money. Although if I can get rent cheaply enough in retirement, I guess I can use the TFSA to "spin off" rent money.

If my income were higher I would be contributing more to RRSPs. I know teachers have a great pension plan, but they take such a high amount of money (from employee and employer both) that employees run out of RRSP room very quickly. This can become a problem if you need to buy back service (very common due to parental and maternity leave) because you can end up with an RRSP overcontribution. (Pension plan contributions take away from RRSP room; I figure an RRSP is basically a "buy your own pension".)
Newbie
Jul 8, 2018
75 posts
57 upvotes
GTA
I noticed the opening post mentioned a DB pension "without taking into consideration CPP", so I want to mention that many DB pensions are integrated with CPP, so really most pensions are reduced by what you'll get in CPP. So for anyone thinking their pension will be 2% of their salary per year of service, make sure to check if that includes or excludes CPP.
Member
Feb 4, 2012
300 posts
103 upvotes
Ottawa
My wife and I have both been retired almost five years. We both have DB pensions but in the earlier part of our careers we also contributed to RRSPs, to the point there's just over six figures sitting in them now. At this point we don't need the funds so we consider it to be an emergency fund. The other reason that we don't touch them is that I've been doing contract work so I remain in a high tax bracket, so any withdrawals would be painful. I didn't expect to be doing contracts but the offer was made so there I am; all this to say you sometimes get surprises and this works against the philosophy of RSPs. TFSAs came along too late in our careers but we to contribute to them now.

At retirement, most people have lower expenses to offset the lower income so it's not an issue. There are some that have higher expenses so you have to have a bit of a crystal ball to see where you'll fit. Having the extra funds and not needing them is better than the opposite.
[OP]
Deal Addict
Jun 14, 2018
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1256 upvotes
Geodude19 wrote: My wife and I have both been retired almost five years. We both have DB pensions but in the earlier part of our careers we also contributed to RRSPs, to the point there's just over six figures sitting in them now. At this point we don't need the funds so we consider it to be an emergency fund. The other reason that we don't touch them is that I've been doing contract work so I remain in a high tax bracket, so any withdrawals would be painful. I didn't expect to be doing contracts but the offer was made so there I am; all this to say you sometimes get surprises and this works against the philosophy of RSPs. TFSAs came along too late in our careers but we to contribute to them now.

At retirement, most people have lower expenses to offset the lower income so it's not an issue. There are some that have higher expenses so you have to have a bit of a crystal ball to see where you'll fit. Having the extra funds and not needing them is better than the opposite.
Agreed that having funds and not needing them is better than the opposite. I just want to not have too much of a surplus.

Have you and your wife been able to live off just the pension in retirement?
Member
Feb 4, 2012
300 posts
103 upvotes
Ottawa
Yes and no. The day to day stuff, living life, travelling, etc. yes. But we've taken advantage of the additional income from my contracting to do some extras, like home renos, nicer vehicles, etc. Icing on the cake stuff. But some of that icing does come from our pension income. We also have one kid we're still supporting a bit, in law school, so that's something we didn't expect, even though it's not a huge amount, maybe a couple of thousand a year to help with furniture, moving expenses, supplies, care packages, and so on.
Member
May 28, 2012
456 posts
414 upvotes
ONT
We have been semi-retired for 23 years, fully retired for 6 years. During those years had DB (not inflation protected so effectively declining in value each year), RRSP's (now RIF's), locked in RRSP (now LIF) and TFSA's.

The "disadvantage" of the RIF and LIF is that you MUST take money out every year. The big advantage for us with the TFSA's is that we only take money out when we WANT to. If we need a new car the TFSA's will pay for it. When we can finally (post Covid) go on a $10K vacation, the TFSA's will pay for it.
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Jun 6, 2009
898 posts
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Montréal
Sears is a good example of why one should not put all his eggs in one DBPP basket.
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Mar 3, 2018
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mrct1944 wrote: We have been semi-retired for 23 years, fully retired for 6 years. During those years had DB (not inflation protected so effectively declining in value each year), RRSP's (now RIF's), locked in RRSP (now LIF) and TFSA's.

The "disadvantage" of the RIF and LIF is that you MUST take money out every year. The big advantage for us with the TFSA's is that we only take money out when we WANT to. If we need a new car the TFSA's will pay for it. When we can finally (post Covid) go on a $10K vacation, the TFSA's will pay for it.
A DB pension will basically cover your day to day living expenses in retirement but doesn't leave a lot left over for big expenditures like a new car, new roof, or nice vacations. That is why it is a good idea to go into retirement with a nest egg set aside for the big stuff.

Also RRIF income in another way to split income with your spouse in retirement. Allows you to withdraw at an even lower tax rate.
Deal Addict
Mar 10, 2010
1467 posts
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I don't ever depend on my DB plan as they're already degrading it now (removing inflation protection of all new people to keep paying for the retired people who of course get to keep their inflation indexation). I keep my TFSA's fully topped up and am approaching my RRSP max at which time I'll go into non-reg investments as well.

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