Huge RRSP Mistake to AVOID – You will LOSE 40% of Your RRSP
The most overlooked area of retirement planning in Canada are taxes owing to the Canada Revenue Agency due to your remaining Registered Retirement Income Fund (RRIF) balance. When a person passes away with an RRSP or RRIF and they have no surviving spouse, the balance of your RRSP or RRIF is deemed to have been paid in full. The result is a high income in the year of your passing. You will lose at least 40 percent of your RRSP or RRIF to tax. If you’re like most people, each year you try to keep more of your hard earned money by contributing to an RRSP. Your RRSP contribution reduces the income tax payable to CRA.
Eliminating or reducing the taxes on your estate is actually very simple. A life insurance policy where the cash value and the death benefit grows over time to meet the needs of the of paying your final needs expenses (funeral, debts, taxes, beneficiaries & charities) Participating or Whole Life insurance will provide this solution for you in addition to being an alternative to your fixed income investments.
If you have any further questions about this video’s topic or any financial planning questions in general, I encourage you to schedule your confidential meeting with me.
Are you investing in an RRSP? We’re going to explain the proper use of an RRSP including what to do if you think you’re behind schedule with your savings goal.
✅ RRSP Contribution Limits
✅ What to do with your Refund RRSP is an acronym for “registered retirement savings plan.”
This definition sounds mighty dry when you consider how RRSPs are superheroes of modern retirement planning for Canadian — true tax-obliterating, retirement-enriching wonders of the modern world.
A Registered Retirement Savings Plan (RRSP) is a retirement account that’s existed since 1957. RRSPs were introduced by the government to help Canadians save for retirement. The main benefit of RRSPs is that tax on RRSP contributions is deferred until retirement.
Situations when contributing to an RRSP isn’t worth it
Your Ontario Teachers’ pension benefit is linked to your RRSP contribution room.
The greater the value of your pension benefit, the less room you will have available to contribute to an RRSP.
Every member of a registered pension plan receives an annual pension adjustment (PA). Your PA, which appears on your T4, reflects the value of the pension benefits you earned in a year. This is the Canada Revenue Agency’s (CRA) way of leveling the playing field between those who are members of a defined benefit pension plan and those who must rely solely on RRSPs for retirement income.
You can find your RRSP contribution room on the Notice of Assessment provided by the CRA each year.
Payout
Teachers receive a pension based on their years of service and their best five years’ average salary. A teacher who retires with a full pension worked for 32 years and earned a best-five-years average salary of $60,000 would have a basic pension of $38,400. A teacher earning $90,000 a year with 32 years of service would have an annual pension of $57,600. The pension amounts are reduced once teachers are old enough to begin collecting CPP payments because the teachers’ pension plan is designed to be integrated with CPP.
When does an RRSP not make sense?
When you expect to be in a higher tax bracket when you withdraw the funds.
If you have higher taxable income when you withdraw the funds, then you could be paying a higher rate of tax.
Start by getting a Second Opinion Portfolio Review to map out your retirement plans, you might not realize how the various income sources integrate. Focus on these particular areas; what, where, when & how much are the income streams at retirement? When will you start to use your retirement assets? Where will this income stream come from – Pension, RRSP, TFSA, savings, investment properties, private mortgages? What type of income is it – pension income, dividend income, interest income.
The average age of retirement for teachers is 57 although in recent years its been 61. Many teachers find that age too early to stop working and decide to open a business or become a consultant. This while being a great idea to keep busy, will also compound your tax issues at retirement.
When you have a sizeable employer plan or other taxable income sources.
If your employer has a pension plan available, then your already going to build a taxable income stream in retirement. Adding an additional taxable income steam such as an RRSP will only contribute to paying more income tax. As a teacher, your pension adjustment will limit the amount you can contribute to an RRSP anyway.
Many people weigh their RRSP contribution by how much they’re getting back from CRA. Retirement planning is a long-term approach. Utilizing a Goal-Based Planning approach shows you how much you should contribute to achieving your income needs at retirement. It’s a completely different way of thinking. ~ David Aaron
As mentioned previously, having additional income streams at retirement is ideal however, you want to plan ahead as to how to mitigate the tax treatment of those income streams.
What teachers are saying about David
I’ve been a teacher for 12 years and I’ve just always put my allowable limit into my RRSP. After meeting with David, he showed me how to continue funding my retirement using the same amount of money, while not increasing the amount I’ll have to pay to Revenue Canada. Honestly, when David showed me this, I was shocked no one had told me about this before!
Randy
Teacher PDSB
Everyone knows being a teacher your going to have a good pension when you retire but I wasn’t sure where to put the extra money I had for savings. An RRSP seemed to be the only option. I had no idea there was an alternative until I met with David. He took his time to explain how it worked and showed me the difference of using this strategy against the RRSP. Can I say my mind was blown! Thanks David.
