# Can you have too much RRSP money saved?



## JohnnyD

I have been following this forum for a while now but this is my first time posting.

A little background - I am 38yrs old, married and the father of two children. For the last two years or so I have been educating myself on how to better invest my savings. After ridding myself of all my bank mutual funds, I have moved everything over to TDDI and have mainly invested and diversified using low cost ETFs. Here is a brief breakdown of our financial situation:

Gross Salary (Mine) - $60K
Gross Salary (Hers) - $70K
Mortgage - Paid off last year!
TFSA - About $1500 short of being fully maxed on both sides
RRSPs (Mine) - $78K + $20K through my work RPP (I currently give 5% and my company matches)
RRSPs (Hers) - $52K + $40K through her work RPP (She currently gives 6% and her company gives an extra 8%)

My concern is regarding RRSPs. I have always been a good saver of my money (research before I buy things, buying when on sale, etc). and was always led to believe that putting money towards your RRSP was a good thing. However, some have also argued that having too much invested in your RRSPs is a bad thing (especially if you are the last spouse to die and have yet to touch any of it). I know that finance is a personal kind of thing and everyone has their views but at some point does it make more sense to eventually just start contributing to a non-registered account (after maxing out the TFSA of course)?

I'd appreciate your thoughts on this topic. Thanks!


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## rikk

Well ... I'm retired, on pensions ... any withdrawals today from my RSP will be at the marginal rate of 40% plus there'll be a claw back of OAS of $0.15 ... so let's say 55%. The best deal, tax wise is of course TFSA gains. The next is non-registered capital gains which would effectively be 20% plus that 0.15 or 35% ... eligible dividends are about the same 35% because of the gross up of .38 which further increases the OAS claw back ... and non-registered GICs are interest income so effectively 55%. No worries though, the RSP has earned it's way tax wise. ... and the contributions tax savings were well spent :very_drunk: Pension splitting when my wife retires will help out with RSP/RIF withdrawals mandatory age 71. If I die, the RSP is hers ... no worries there, it'll be spent in no time :very_drunk:. If not, the kids'll get it :very_drunk: ... as mentioned, it's earned it's tax so not a consideration. And if my arithmetic above is off (I am in a 40% marginal bracket ... okokok ... 39.9), please advise, thanks ...

_If money isn’t bringing you happiness, you aren’t spending it right …_


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## steve41

There is no clear answer due to one simple fact..... you never know when you are going to die. If you elect one course (avoid or scale back your RRSP contributions), and you die much earlier than you planned, your estate will be advantaged. If you make it out to some ridiculous age (95-100, say) then your estate will be disadvantaged. And, of course, vice versa.


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## Charlie

If you're under 40 with less than $200K in RRSPs, no defined benefit pensions and fully funded TFSAs, then keep socking it away. 

You don't have too much money. Not yet!


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## Barwelle

rikk said:


> Well ... I'm retired, on pensions ... any withdrawals today from my RSP will be at the marginal rate of 40% plus there'll be a claw back of OAS of $0.15 ... so let's say 55%.


I think this is a little misleading... your marginal tax rate is 40%, meaning the last dollar you earn is taxed at 40%, sure... but it should be clarified that your average tax rate is lower than that.

Gotta take into consideration the basic exemption (which I believe is around $11,000 for the federal tax calculation) that is taxed at 0%, plus the lower % tax brackets.


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## steve41

Barwelle said:


> I think this is a little misleading... your marginal tax rate is 40%, meaning the last dollar you earn is taxed at 40%, sure... but it should be clarified that your average tax rate is lower than that.
> 
> Gotta take into consideration the basic exemption (which I believe is around $11,000 for the federal tax calculation) that is taxed at 0%, plus the lower % tax brackets.


 This drives me nuts as well. I am certain there are people out there who immediately jump to the conclusion that if you are in a 40% marginal tax bracket, you must be paying 40% on your income.


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## blueeyetea

The thing about RRSP's is that you're putting off paying the taxes until later on that revenue. What are the odds your tax bracket will be higher as a retiree than working full time? Not that likely, imo. Money you pay taxes with is gone forever, while a RRSP contributes a tax refund that you can reinvest back into your RRSP. Wouldn't you have that money working for you instead? You never know what kind of circumstances might contribute to your salary going down one year and you need to draw on your RRSPs early. You could even decide to retire early at 55 with no money except RRSPs'.


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## OptsyEagle

If you have no pensions, then RRSPs are a no brainer in your tax bracket. If you do have pensions, that will cover your retirement expenses, then you may want to give them a little more thought. Probably still not too bad of idea but you want to do some math on it.


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## cainvest

This is all part of retirement planning, once you've done that the picture should become clear, or at least, a little less hazy. Of course there is always the assumptions you'll need to make ...
- Life expectancy
- Income amount you want when retired
- Income amounts received when retired (estimate all possible/likely sources)
- Starting age of retirement (55,60,65,70?)

After you figure this out you should have an idea of how much RRSP you will want/need.


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## OnlyMyOpinion

Kudos, sounds like the two of you are doing everything right in our opinion - with the mortgage paid off and good earning years ahead, you're in a position to do some serious saving. 
You mention maxing' out the TSFA's and also your RRSP's, sounds like no DB pension but company RPP's. Assume you've considered RESP's as well. 
In our opinion - if after all that, there is still money to invest - then the unregistered account gets it. 
We'd continue to max out the RRSP's, as has been mentioned you've still got a fair way to go but at least you have the means. The RRSP tax deferral and tax-sheltered growth are important. 
When you are at $500-700k each in your RRSP's, then we'd start looking at options - early retirement and/or withdrawl, etc.
You might find this on-line calculator helpful in providing some very ball-park estimates:
http://finance.yahoo.com/calculator/retirement/ret02/


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## rikk

Barwelle said:


> I think this is a little misleading... your marginal tax rate is 40%, meaning the last dollar you earn is taxed at 40%, sure... but it should be clarified that your average tax rate is lower than that.
> 
> Gotta take into consideration the basic exemption (which I believe is around $11,000 for the federal tax calculation) that is taxed at 0%, plus the lower % tax brackets.



It's not "the last dollar" ... in my case, it's "all the dollars" over the taxable income of $84K ... so, if I earn $1000 dollars interest say (on top of my $84K taxable income), or withdraw $1000 from my RRSP, the tax is $400 and I lose $0.15 x 1000 = $150 OAS for a total of $550 ... that's effectively 55% ... my average tax is something like 27%.

The topic is RRSPs, can you have too much ... and I'm just saying, in my case, the tax on an RRSP withdrawal plus the OAS loss amounts to 55%. Non-registered eligible dividends, capital gains, for example are the better deal ...


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## OnlyMyOpinion

We're planning to have a 'way too much' RRSP/RRIF and other income, and watch 'our' OAS clawed back to going to those with less income.


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## JohnnyD

Thank you everybody for your responses thus far. Even though I am about 22 yrs away from retirement (my goal is 60 even though OAS has been moved back to 62), you have given me some better perspective on retirement.

Beyond retiring at 60, there is not much else planned out at this stage. I'd like to do some more traveling and maybe spend some of our time in Florida or somewhere in Europe. I think I have enough interests to hopefully keep me occupied.

I probably won't be able to save as much this year due to a couple of needed projects around the house but I'm still going to keep investing into my RRSPs. The tax refund is nice and helps us contribute to things such as our TFSA and kids' RESP.

As for OAS, I don't know what to think. My generation has always been told to not expect anything so I don't know if it will be there for me by the time I get to that age. But then again, this could be big banks spreading the message so that we invest more with them. Who knows for sure? I just want to make sure I have my family well taken care of long after I am gone.


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## Barwelle

rikk said:


> It's not "the last dollar" ... in my case, it's "all the dollars" over the taxable income of $84K ... so, if I earn $1000 dollars interest say (on top of my $84K taxable income), or withdraw $1000 from my RRSP, the tax is $400 and I lose $0.15 x 1000 = $150 OAS for a total of $550 ... that's effectively 55% ... my average tax is something like 27%.


OK, I see where you're going. So you have 84K in pension income which means all the money you put into your RRSP gets taxed at that 40% + OAS clawback, right from the first dollar. Missed the pension part in your first post (or didn't realize how much income you had from it).

That's good you understand marginal vs average tax rate, like steve41 alluded to, some don't. Just wanted to make the difference more obvious, for the benefit of those who don't know.


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## rikk

Barwelle said:


> OK, I see where you're going. So you have 84K in pension income which means all the money you put into your RRSP gets taxed at that 40% + OAS clawback, right from the first dollar. Missed the pension part in your first post (or didn't realize how much income you had from it).
> 
> That's good you understand marginal vs average tax rate, like steve41 alluded to, some don't. Just wanted to make the difference more obvious, for the benefit of those who don't know.


What I said is what I said ... I could have defined "taxable income" more clearly by including something like "as arrived at on line 260 of the T1 General Income Tax and Benefit Form" ... enjoy the day :encouragement: I myself am going to take one of those dollars ... so that would be $0.45, and go buy something, less the 13% HST, for $0.39 :encouragement:

Afterthought ... I'm not so sure understanding marginal tax rate is as important as understanding the different rates different "investments" are taxed at, or, if you understand how different investments are taxed, awareness of your own marginal rates is part of that. I chose day trading as a hobby for a few years, partly for tax reasons ... capital gains/losses.

I don't particularly like having my savings (non-registered) in HISAs and 180 day GICs with the interest taxed at 40% ... waiting for that 2014/2015 correction ... but they're secure and so I'm sleeping just fine these days :very_drunk:


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## janus10

I just finished reading "Your Retirement Income Blueprint" which I really enjoyed and learned a lot of first time things. In it Daryl Diamond, the author, focuses on how you withdraw your retirement income.

It's the first book I've read that doesn't focus on the accumulation phase. I think that it could help the OP understand HOW you can have "too much" in RRSPs and why you would want to look at using them as one of the first layers of retirement income vs. tax advantaged sources like non-registered accounts and TFSAs.

In other words, better to know now how to ideally set yourself up for the dispersion stage. His website is http://www.boomersblueprint.com/blog/

I borrowed it from a library so before I take it back I'll share some of the key points I found most valuable and enlightening.


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## OnlyMyOpinion

++^ janus10
We've found his information related to the tax efficient drawdown of your assets very informative. As you point out, we spend all of our time accumulating and winding down is often an afterthought. The link: About Darly Diamond > In the news will take you to a long list of thought-provoking articles.


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## Daniel A.

You can never have enough saved in an RRSP , one or two bad years in the markets at the wrong time is more than enough reason.

My wife and I due to our pensions are not dependent on RRSP'S but they come in handy.


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## rikk

Daniel A. said:


> You can never have enough saved in an RRSP , one or two bad years in the markets at the wrong time is more than enough reason.


Or "one or two" bad years ... cashed my RRSPs in to cover costs about 25 years ago, built back up somewhat since then ... I looked at an RRSP as simply sheltered savings.


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## My Own Advisor

Agreed Daniel A. re: enough in your RRSP...

If the biggest complaint people have in retirement is too much tax, that's a good thing.


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## rikk

JohnnyD said:


> I just want to make sure I have my family well taken care of long after I am gone.


If that's a concern, you didn't mention life/disability insurance in your original post, you might consider putting something towards that ... getting off-topic ... wills and insurance would be a good idea I think, that RRSP would be heavily taxed should something happen to both you and your wife ...


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## rikk

My Own Advisor said:


> Agreed Daniel A. re: enough in your RRSP... If the biggest complaint people have in retirement is too much tax, that's a good thing.


Agreed ... ok, the shoulder (tore a muscle a few weeks back) is not too bad today ... back to the renovation work :encouragement:


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## blueeyetea

JohnnyD said:


> Thank you everybody for your responses thus far. Even though I am about 22 yrs away from retirement (my goal is 60 even though OAS has been moved back to 62), you have given me some better perspective on retirement.


Just in case it wasn't a type, the OAS has been moved back to 67.


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## llagebs

I don't know if I'll have too much or too little in my RRSP come retirement, but if it's too much then I'll consider that a first world problem.


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## heyjude

Congratulations JohnnyD, sounds like you two are in good financial shape for your stage in life and are thinking long term. 

The answer is, it depends. Putting money in RRSPs has tangible immediate benefits, especially when you are in a higher tax bracket, and the untaxed money has an opportunity to compound for many years if you start early. During this time it beats TFSA money, which has had tax withdrawn before you can even invest it. But everything is reversed when you withdraw the money. Now every TFSA dollar is yours, free and clear, while every RRSP dollar brings its tax liability with it, and it is taxed as ordinary income. In an ideal world, you would be in a low taxable income bracket when you need to withdraw your RRSP money. If you have no other income at all, you might end up paying very little income tax, though of course there would be withholding at the time of withdrawal. However, if you have a pension, or have investment income, it's very likely that your RRSP withdrawal will boost your taxable income to a higher tax bracket. If you are 71, you will be required to convert your RRSP to a RRIF and take RMDs (required minimum distributions) from it every year. Those RMDs may catapult you into the top tax bracket. Many seniors are shocked when they face humongous tax bills from age 71 on.

I will be in this situation myself. I am an early retiree in my late 50s with no pension and I will face a big hike in income taxes at age 71 based on mandatory RRSP withdrawals. While I do have investment income, my taxable income is now at its lowest. I am taking my accountant's advice and drawing down some of RRSP money now, paying tax now at a lower rate, with the goal of reducing the amount on which I will have to pay RMDs when I am 71. It's called tax smoothing. I am using some of the money I withdraw to invest in my TFSA, which I find to be a very flexible vehicle. 

RRSPs are great vehicles but there is no free ride. The key to optimizing your after tax returns is planning, which needs to be updated every couple of years based on your financial situation and current tax laws. Do you know whether you will have a pension in retirement? How will your retirement income be made up? You can play around with the calculators in www.taxtips.ca to get an idea. I also highly recommend Darryl Diamond's book.


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## Eclectic12

JohnnyD said:


> ...
> RRSPs (Mine) - $78K + $20K through my work RPP (I currently give 5% and my company matches)
> RRSPs (Hers) - $52K + $40K through her work RPP (She currently gives 6% and her company gives an extra 8%) ...


Is the RPP a defined contribution pension?

Is so, with the numbers you currently have, I'd expect the RRSP is a better deal. I'd make some assumptions and run the numbers.

Just bear in the that the most frequently flogged reason for "too much in an RRSP" is losing OAS. I've seen a quote from one of the gov't departments indicating that only 2% lose OAS completely.

Then too - if one is in a DC RPP, as long as one is paying attention - depending a series of factors (which would play into the assumptions mentioned above) such as when CPP is started as well as when the retirement happens, there should be time available to withdraw from the RRSP to either put into a taxable account or TFSA from the RRSP. Until the minimum withdrawals kick in, there could be a significant amount of time where you would control your income level.




JohnnyD said:


> ... My concern is regarding RRSPs.
> 
> I have always been ... led to believe that putting money towards your RRSP was a good thing. However, some have also argued that having too much invested in your RRSPs is a bad thing (especially if you are the last spouse to die and have yet to touch any of it).


When are you planning on retiring, when will the RPP as well as CPP start?

For example, if you retire at 55 and no other income starts (i.e. OAS, RPP, CPP ) kick in until 65 - that's ten years to shift out of the RRSP into either a TFSA or taxable account, potentially at an income level of your choosing.




JohnnyD said:


> ... I know that finance is a personal kind of thing and everyone has their views but at some point does it make more sense to eventually just start contributing to a non-registered account (after maxing out the TFSA of course)?


The bigger issue is having a handle on what your situation might be like in retirement. 
Far too many focus on the "one size fits all" description of a few articles, don't realise that there is something in play for them that differs from the assumption in the article and end up regretting their actions.


Cheers


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## heyjude

Eclectic12 said:


> For example, if you retire at 55 and no other income starts (i.e. OAS, RPP, CPP ) kick in until 65 - that's ten years to shift out of the RRSP into either a TFSA or taxable account, potentially at an income level of your choosing.


That's exactly what I am trying to do, as described above.



Eclectic12 said:


> The bigger issue is having a handle on what your situation might be like in retirement.
> Far too many focus on the "one size fits all" description of a few articles, don't realise that there is something in play for them that differs from the assumption in the article and end up regretting their actions.


Precisely.


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## Eclectic12

heyjude said:


> That's exactly what I am trying to do, as described above.


Which is a good plan ...




heyjude said:


> Eclectic12 said:
> 
> 
> 
> The bigger issue is having a handle on what your situation might be like in retirement.
> 
> 
> 
> Precisely.
Click to expand...

I'm glad you agree.

It does raise the question in my mind why you believe that "... if you have a pension, or have investment income, it's very likely that your RRSP withdrawal will boost your taxable income to a higher tax bracket."

This would be specific to someone with a good pension and/or significant investment income and is far less likely for someone in a DC pension or who has an employer matched RRSP as their only retirement plan.

OAS as well as CPP will also affect the mix but these don't start until 65 or later.


Cheers


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## heyjude

Eclectic12 said:


> It does raise the question in my mind why you believe that "... if you have a pension, or have investment income, it's very likely that your RRSP withdrawal will boost your taxable income to a higher tax bracket."
> 
> This would be specific to someone with a good pension and/or significant investment income and is far less likely for someone in a DC pension or who has an employer matched RRSP as their only retirement plan.
> 
> OAS as well as CPP will also affect the mix but these don't start until 65 or later.


Once again, it depends on the numbers specific to the individual. Some people do have "good" pensions, and some have "significant" investment income. That's why everyone needs to analyze his or her own situation. I have investment income. I have had financial plans with modeling done on a few occasions and they all project a big hike in income taxes at age 71. If I didn't have investment income, without a pension, I would not have retired when I did.


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## Eclectic12

heyjude said:


> Once again, it depends on the numbers specific to the individual.
> Some people do have "good" pensions, and some have "significant" investment income. That's why everyone needs to analyze his or her own situation...


 ... which is what prompted my curiosity as to my way of thinking, the use of the word "likely" in the earlier posting suggests that this situation is the most common situation. I'm not sure which situation is more likely.

Then too ... with the number of DC pensions growing, an article recently saying high numbers have only their RRSP (i.e. four of five private workers), it would appear that wherever the balance is at the moment, the trend would be for more people to fall into the "lower income at RRSP withdrawal" bucket.




heyjude said:


> ... I have investment income. I have had financial plans with modeling done on a few occasions and they all project a big hike in income taxes at age 71. If I didn't have investment income, without a pension, I would not have retired when I did.


It's great that you have looked into this and are doing what you can.

Ignoring the factors mentioned above, some other factors suggest that your situation might not be the likely one. These include that the median contribution for 2010 was $2790, fewer pensions (DB or DC) plus how late people seem to become interested in saving for retirement.


Cheers

*PS*

Another interesting bit is that where the employer has a matching program (i.e. free money), something like half of those eligible participate.


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