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RRSPs? Yes or no?
Old 06-16-2011, 07:10 PM   #1
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RRSPs? Yes or no?

My pension + CPP will be about $60K before taxes. Currently, I have only about $120K in savings.

My condo is paid and I have no bills, although I do plan to buy an RV soon (~$50k).

Is it worth sinking more money into RRSPs this close to retirement or should I keep cash flow more fluid? I can't seem to get a straight answer from my bank.

For that matter, is it realistic to think I can live on about $$2K a month (in disposable income after all bills are paid) and still travel in an RV full time?

Advice would be much appreciated
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Old 06-16-2011, 07:15 PM   #2
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Not familiar with RRSPs so had to google it. Here's the wiki article on it:

Registered Retirement Savings Plan - Wikipedia, the free encyclopedia

Is this what you're talking about? Given my lack of intel on RRSPs I'll have to fall back on my standard advice regarding investment decisions around retirement time.

Chill out, give yourself some time to think things through and don't make any major decisions right away if you can help it.

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Old 06-16-2011, 09:09 PM   #3
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Quote:
Originally Posted by Nuiloa View Post
Is it worth sinking more money into RRSPs this close to retirement or should I keep cash flow more fluid? I can't seem to get a straight answer from my bank.
I have no idea about the cost of RVing. About RRSPs, it all depends...on information that you haven't provided in this post...and I am too lazy to go searching for your other posts.

Basically, RRSPs work best if you put money into them when you are in a high tax bracket, let it grow over time, and take it out when you are in a lower tax bracket. You defer the taxes to that time, but you must eventually pay them. If you are in a low marginal tax bracket when you put the money in, your tax break on your current RRSP contribution will be relatively low. You get the biggest immediate bang for your RRSP buck if you are a high income earner.

Check out the Walter Harder site Walter Harder & Associates Home Page and play with some scenarios. I have attached a hypothetical scenario in which you receive $60K in pension (or any) income...and that includes the income from RRSPs. If you lived in Ontario in 2011 you would pay a total of $12,116.82 in taxes, or 20.19% of total income. Note that the marginal tax treatment of capital gains is the most favourable and ordinary income, the least favourable.

If you are currently in the highest tax bracket, and can wait to use your RRSPs until (a) they have grown tax free and (b) you have little or no other income, RRSPs are worthwhile. If, on the other hand, you are putting money into RRSPs now in the 31% marginal tax bracket, and taking it out next year in the same marginal tax bracket, that's not such a good deal. Another point to watch if you have a lot of money in RRSPs: once you hit 71, you must make mandatory withdrawals. If that occurs while you also have other income, you may end up in a high tax bracket and pay too much tax on it.

In fact, if you are going to be in a situation where you have no "income" and have a decision to make in ER as to where to draw down first, your RRSP might be a good place to begin. That's because, if it is your only "income", the tax you pay on it will be very low. And by leaving a smaller residual amount, your mandatory minimum withdrawals will decrease. All this only works if you have other, post taxed funds that you can use later.

Not the clearest explanation, but I hope that helps. You might find it helpful to check out the Canadian Money Forum and Financial Webring Forum, both of which have many threads on RRSPs.
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Old 06-16-2011, 09:27 PM   #4
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What meadbh said plus:

If the income from RRSP withdrawals, which became mandatory at 71, increases your income past a certain threshold ($66-67K), your OAP is starts to be clawed back. In some cases, a TFSA makes more sense.
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Old 06-16-2011, 10:15 PM   #5
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Hello Nuiloa,

I'm guessing the pension is a defined benefits pension plan. If so, you are in a sense already contributing to an RRSP. Your pension contributions are adjusted from your income and reduce your taxable income. Also, those contributions reduce the amount of RRSP "room" you receive.

Do you know what your RRSP contribution limits are? I am a member of a defined benefits pension plan, and as a result my RRSP contribution room is pretty limited. Usually, my RRSP contribution room is capped at about 5% of my gross income every year.

Uh, so, unless you have lots of unused room, you may be better off just contributing to your TFSAs. If you do have lots of unused room and are a high income earner, it may be worthwhile to go ahead and start an RRSP.

One tool to check out is the tax calculator at taxtips.ca: TaxTips.ca - Canadian tax calculator

Finally, will you be receiving a lump sum severance when you retire? If so, that may be something to consider. You could save your RRSP room for that.

Hope this helps.
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Old 06-16-2011, 10:17 PM   #6
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I'm kinda clueless in this discussion but would like to add how much I adore our Canadian members :-)
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Old 06-17-2011, 09:57 AM   #7
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Originally Posted by oneils View Post
Hello Nuiloa,

I'm guessing the pension is a defined benefits pension plan. If so, you are in a sense already contributing to an RRSP. Your pension contributions are adjusted from your income and reduce your taxable income. Also, those contributions reduce the amount of RRSP "room" you receive.

Do you know what your RRSP contribution limits are? I am a member of a defined benefits pension plan, and as a result my RRSP contribution room is pretty limited. Usually, my RRSP contribution room is capped at about 5% of my gross income every year.

Uh, so, unless you have lots of unused room, you may be better off just contributing to your TFSAs. If you do have lots of unused room and are a high income earner, it may be worthwhile to go ahead and start an RRSP.

One tool to check out is the tax calculator at taxtips.ca: TaxTips.ca - Canadian tax calculator

Finally, will you be receiving a lump sum severance when you retire? If so, that may be something to consider. You could save your RRSP room for that.

Hope this helps.

I believe there may be the ability to deposit lump sum severance pay into an RRSP above and beyond whatever RRSP room you currently have. I think it has something to do with how long you have been working. Sorry don't know more. I think there is something on the the Government of Canada web pages about it. My HR department has made reference to this possibility but i don't have any more info.
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Old 06-17-2011, 01:12 PM   #8
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Thanks all! That tax calculator is pretty handy!

Nui
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Old 06-17-2011, 03:56 PM   #9
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To Nuiloa,

How do you find out how much your CPP is going to pay before you actually retire ?
Is this amount depends of number of years worked ?
I am only 44 but would like to retire very very soon.
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Old 06-17-2011, 09:02 PM   #10
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Originally Posted by blacktea View Post
To Nuiloa,

How do you find out how much your CPP is going to pay before you actually retire ?
Is this amount depends of number of years worked ?
I am only 44 but would like to retire very very soon.
Try this link:
Canadian Retirement Income Calculator
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Old 06-17-2011, 09:26 PM   #11
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Originally Posted by blacktea View Post
To Nuiloa,

How do you find out how much your CPP is going to pay before you actually retire ?
Is this amount depends of number of years worked ?
I am only 44 but would like to retire very very soon.
I'd count on next to nothing, and nothing until you are at least 60. It depends on years worked and contributions. I don't know the calculations for checking out of the rat race retiring 16 years before CPP eligibility begins but suspect it's not good for you. You did get me thinking however. DW is 60 and able to collect. She contributed for about 15 years and retired became a SAHM in 1980 at ~30. My guess is she'll get <$1K/year.
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Old 06-17-2011, 09:36 PM   #12
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A couple of years ago the federal government changed the rules to make it less attractive to take CPP early. There is a good discussion here:
Ottawa discourages taking early CPP - Canadian Money Forum
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Old 06-18-2011, 02:23 PM   #13
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I still think i would collect as soon as possible, who knows what happen five more years down the road ?

The government hope that we die before we get a chance to collect, i think .
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Old 06-18-2011, 02:42 PM   #14
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Originally Posted by blacktea View Post
To Nuiloa,

How do you find out how much your CPP is going to pay before you actually retire ?
Is this amount depends of number of years worked ?
I am only 44 but would like to retire very very soon.
You can call Service Canada and request a Statement of CPP Contributions. It will list your CPP contributions to date and provide you with projections on your CPP payments if you become disabled, retire at 60, 65 or 70.
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