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RRSP’s – time to reconsider your retirement plan

Posted on January 17, 2019

RRSP contributions are most effective when made in a high-income earning year and taken out in a low-income earning year. Historically, retirement planning included the assumption that individuals would live-with-less when they retired and therefore, would be in a lower tax-bracket.

With a growing number of Canadians this simply is no longer true. Either they anticipate spending more in retirement or they are not earning a significantly higher income immediately before retirement. In both situations the benefits of an RRSP are eroded.

Some of the various considerations include:

–       Will your ‘average’ tax rate in retirement be less than your current ‘marginal’ tax rate?

–       Will your spouse have a similar average tax rate in retirement?

Alternatives to RRSP’s include:

–       Maximizing your TFSA

–       Investing in non-registered accounts

–       Investing within a small business corporation or related corporation

Note: This is a simplified overview of the subject, contact your financial advisor to determine how this applies to your unique situation.