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.
