Canadian Retirement Planning
An Overview of common mistakes

Since their introduction in 1957 as a voluntary tax deferred retirement savings tool, RRSPs have become increasingly popular with Canadians.

RRSPs have also evolved to the point where many people might not be aware of some of the hidden nuances and when used properly can enhance any retirement planning outcome.

This article focuses on just three little or unknown facts about Canadian retirement planning and the use of RRSPs.

Here are three retirement planning moves you probably didn’t know you could make with your RRSP:

You Can Maximize Your Tax Deductions

When it relates to Canadian retirement planning there are advantages.

There is the appeal of the RRSP and the tax deduction that is provided, up to your limit, on your yearly contributions.

Generally, people will take the deduction in the year that the contribution is made.

That might make sense for most people, but what if you anticipated a large bonus next year or that your income is going to increase significantly in the future.

In these cases, you might be better off making the contribution as you normally would but postponing the tax deduction to a later year when you could find yourself in a higher tax bracket.

By making the contribution currently you will be taking advantage of the tax deferred growth of your funds.

By waiting to take the deduction you will be able to maximize the tax benefits in a year when you can really use it.

You Can Maximize Your Tax Deferral

A lot of people actually wait until the end of the plan year or until they are able to determine their allowable contribution amount before beginning to contribute to their RRSP.

This could be costing them a significant amount of money in terms of the lost opportunity to earn tax deferred growth on their funds.

There’s no reason to wait and, in fact, you can make begin making current year contributions as early as January 1, although it will have to be based on an estimate of your contribution limit.

You Don’t Have to Contribute Cash

If you’re cash strapped or you need to stay liquid, you have the option of making a direct transfer of an equivalently valued investment vehicle into your RRSP.

If you own stocks or mutual funds that meet the plan’s guidelines and that are allocated towards long term investments, you can simply move them inside your RRSP.

It may make more sense to transfer bonds or interest bearing securities into your RRSP as the interest income will not be subject to current taxes.

It is important to note that the transfer of securities into your RRSP could trigger a tax if they have appreciated in price since their original purchase.

One last, very important, and little known fact: Most people know that they can make contributions into their spouse’s RRSP.

It is not widely known that a married couple can use the younger spouses age as the retirement trigger for converting the maturity option.

For some people, this could mean several years of extra tax deferral and growth on their funds.

Case Study: Canadian Retirement Planning
A Financial Snap Shot

About 10 years Ben (not his real name) came to Canada after working in the U.S. for the past 20 years.

He was a professor and by the time I had met him at aged 45 he had some assets which included a revenue property that would make up part of his long-term retirement plans.

He knew Canadian Retirement planning was important and it was always at the back of his mind as he also had a U.S teacher's pension he was entitled to.

He had his current plan with the institution he taught at and some RRSPs which he had for his wife and himself.

The retirement vision he had for himself was one of maintaining good health.

The death of his father at an early age always haunted him.

He wondered aloud back then often if he would live to see his 50th birthday.

He was especially adamant about making sure he had his will and other estate issues taken care of.

To this day every few years he reviews how his estate is setup. If he made it to 50, his vision was to spend more time with his grandchildren who were scattered around the world.

Beyond that, he saw this time of his life as a bonus.

He said he would always enjoy each day as it came to him.

So while he took good care of himself and was active, he made sure that if he was not around, there would be assets to provide for his wife and children even though they were well on their way to leading their own financial lives.

From the time we first met, Ben divided his planned retirement savings into vehicles that he was comfortable with.

As an American born individual, Ben is not shy to tell you about the love he has for this country, it is where he met his wife and raised a family.

While he still has some ties to the U.S., he wanted to make sure he was taking advantage of all the Canadian retirement planning options that were open to him.

Today at 62, Ben enjoys his retirement besides being an avid reader, he and his wife travel often to see their grandchildren.

His retirement lifestyle income comes from a U.S. Teacher's pension, a Registered Retirement Income Fund (RRIF) a QPP payment and Non-registered Investments.

While he does not need the income from his rental property, he reinvests it monthly as he feels he may need this money later in life for long-term care for Ben and his wife.

But right now he is in the best of health and enjoying all the things that matter most to him in his life.

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