RRSPs are not for everyone

by Jamie MacDonald

Every year around this time I find myself inundated with last minute investors trying to make their RRSP contributions before the end of February cut-off. In a number of cases, individuals have waited religiously to the very last day and make it a rite of passage. Ironically these same individuals often have a misguided view on the value of their RRSP contributions, let alone the need for one.


A registered retirement savings plan (RRSP) is great product for saving for the future, but it is just another investment tool that individuals have available from the retirement toolbox.

RRSPs are not for everyone. They offer a deferred tax investment that can shelter your taxable earnings from higher marginal tax rates today and withdraw the funds in a lower tax rate once you retire. If you have relatively the same tax rate in retirement as you do now then RRSPs won’t help you. This is common amongst individuals with good pensions such as teachers, professionals, senior government employees, etc. Low income earners may not benefit from RRSPs as they don’t have high marginal tax rates. In other cases, individuals who have maximized their pension contributions each year, may be limited in their ability to contribute to an RRSP. So who benefits from an RRSP?

The most common situation for the average Joe (or Jane), is someone who has above average income today, no pension in retirement and needs to build a savings plan after they finish work. If you have a spouse who has little or no income in retirement then a spousal RRSP would be ideal. Additionally those who want to save up to buy their first home or get a post secondary education, an RRSP may be ideal for these individuals.


As mentioned above, RRSPs are just one of many investments options to explore when saving for the future. I don’t like paying taxes just as much as the next guy so I dig through my retirement toolbox and see what else is available. Maybe a tax-free saving account (TFSA), a Registered Education Savings Plan (RESP) , or possibly a non-registered account. Paying down debt, such as a mortgage, is also a good choice. There are lots to choose from and everyone is different. Before you run out to make that next RRSP contribution, spend a little time to learn what your goals are for the future, understand the various investment tools available, and speak to an advisor who knows how to put it all together for you. It will be time well spent.


 Jamie MacDonald, Advisor
JS MacDonald Financial Services
Antigonish, NS (902) 735-3011


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