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Planning for your future – if your future is retirement

It is the time of year when I visit with a number of clients with the same question – how much do I need to retire? What should I be doing to ensure my family and I will be comfortable? Some of my clients have lots of time to plan; others wish they c

It is the time of year when I visit with a number of clients with the same question – how much do I need to retire? What should I be doing to ensure my family and I will be comfortable? Some of my clients have lots of time to plan; others wish they could retire now. I can certainly tell you that every situation is different, but there are some consistent tax planning strategies you can consider that may boost your retirement plan.

How much do you need?

My father used to say that an ideal retirement plan would allow for him to die on the day that his money ran out. His outlook suited him perfectly – but that date is so very hard to predict.

You will need to consider the change in the Canada Pension Plan and when you wish to start to participate in this plan in your decision.

Recent announcements in the Federal Budget discuss changes to Old Age Security (OAS) which will need to be considered. Starting on July 1, 2013, individuals will be allowed to voluntarily defer their OAS pension for up to five years. These individuals will then receive a higher actuarially adjusted annual pension. The budget also announced that the age of eligibility for OAS will be gradually increased from 65 to 67, but only starting in 2023, with full implementation by 2029.

What vehicle does one use in planning for retirement?

When we talk about vehicles – you may wish to trade the “new car smell” for a vehicle that allows you to save for your future. Depending on your personal situation, RRSPs, Tax-Free Savings Accounts (TFSA), Registered Education Savings Plans (RESP) and Registered Disability Savings Plans (RDSP) can offer significant tax benefits for your investment savings.

How do tax-assisted savings plans work?

All tax-assisted savings plans offer your money or investments the opportunity to earn income and grow in a tax-free environment. However, contribution limits and the tax treatment of contributions and withdrawals vary.

RRSPs and TFSAs — Which is best suited for you?

Which plans you choose for your savings will depend on your circumstances. Generally, if you have enough resources, you should invest in ALL of the relevant plans. For many Canadians, the most relevant plans are RRSPs and TFSAs.


If you expect your future income to fall into the same tax bracket as your current income, the tax benefits of a TFSA and an RRSP will be similar. That is, the value of the tax deduction for an RRSP contribution will generally equal the value of withdrawing funds tax-free from a TFSA.

If you expect your future income to fall into a lower tax bracket than your current income, an RRSP investment can provide a tax advantage because the tax savings from the deduction you get today will be more than the tax you will eventually pay when you withdraw the money from your RRSP in a lower tax bracket.

If your income falls into a lower tax bracket now, but you expect it to be higher in the future, a TFSA offers a greater tax benefit because you would pay a higher tax rate on RRSP withdrawals in the future than you would pay today on the income you contribute to the TFSA when you are in a lower tax bracket.

Pooled Registered Pension Plans – What are they?

If you are self-employed or employed by a small business and don’t already have a company pension plan, you will soon have a new option for tax-effective retirement savings. PRPPs will offer the benefits of participating in a large pension plan like the defined contribution plans many large companies offer.

PRPPs’ potentially large pooled funds may allow plan members to benefit from lower investment management costs. Along with these potential cost savings, PRPPs will offer the same tax benefits as RRSPs. PRPP contributions will be tax-deductible. Individuals’ combined PRPP contributions and RRSP contributions will be subject to the current annual RRSP limit of 18 per cent of the previous year’s earned income, up to a maximum of $22,970 for 2012. Any employer contributions are included as part of the employee’s contribution room.

PRPPs are to provide the same tax-deductible contribution room for retirement savings as RRSPs, but with a different investment vehicle. Employees will be able to transfer their savings between PRPPs, so they’re not wedded to one plan.

We expect PRPPs to become available once the necessary federal and provincial legislation has been passed. The Department of Finance says provincial and federal officials are working together to implement PRPPs as soon as possible.


While deciding between contributions to an RRSP, a TFSA and paying down your mortgage is a decision we all make, maximizing all of these, if you possibly can, may be necessary to ensure a level of comfort in retirement. If you use my father’s retirement strategy, you need to know exactly how long you will live to be able to plan accordingly.