# Should I even bother with RRSPs?



## Siwash (Sep 1, 2013)

From Money Sense:

*"I have a pension. Do I need an RRSP too?
*
*For most people the answer is yes—although if you have a good pension at work, you can certainly contribute less to your RRSP than someone without one. With no pension, you can contribute up to 18% of your income to an RRSP each year. If you have a private pension, then the amount you are allowed to contribute to your RRSP will be reduced, to reflect the fact that you are also contributing to your retirement income through your pension at work.
There is one group that doesn’t need RRSPs at all: government workers. Teachers, police officers and other civil servants have among the best pension plans available and won’t need help from RRSPs to retire comfortably. For instance, a couple who are both government workers can expect to enjoy a combined annual pension income of at least $50,000, which is roughly the kind of income that a million-dollar portfolio would generate."*

I'm a teacher… so is the Mrs… Should we just max out on TFSAs? Tell me why I should still bother with RRSPs (not a penny contributed up til now).

Thanks!


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## doctrine (Sep 30, 2011)

What happens if your pension fund is underfunded, and your benefits are cut back? This is not an impossible scenario.


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## Synergy (Mar 18, 2013)

Depends somewhat on your income. I'm not sure what type of salary you each bring in on a yearly basis but in general I'd max out the TFSA first, optimize your RRSP and invest the rest in a non-registered account. Also depends somewhat on how much money you want to live on during retirement - do you want to retire "comfortably" or do you want to "live life to the max - lotto max style"! By optimize I mean - contribute enough to lower your income but not to the point that it drops you down to the next tax bracket.


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## Dmoney (Apr 28, 2011)

doctrine said:


> What happens if your pension fund is underfunded, and your benefits are cut back? This is not an impossible scenario.


I'm assuming the taxpayer tops it up...
Usually seems to be the solution


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## Siwash (Sep 1, 2013)

Dmoney said:


> I'm assuming the taxpayer tops it up...
> Usually seems to be the solution


Not this time… seems to be a possibility that the fund will be underfunded… I think we'll be asked to contribute more in next agreement..

Anyhow, I still have to figure out how much "optimize" amounts to…. how does one figure what this amount is?


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## Siwash (Sep 1, 2013)

Synergy said:


> Depends somewhat on your income. I'm not sure what type of salary you each bring in on a yearly basis but in general I'd max out the TFSA first, optimize your RRSP and invest the rest in a non-registered account. Also depends somewhat on how much money you want to live on during retirement - do you want to retire "comfortably" or do you want to "live life to the max - lotto max style"! By optimize I mean - contribute enough to lower your income but not to the point that it drops you down to the next tax bracket.


150k household but we'll top out at 185k in 5 years...


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## Guban (Jul 5, 2011)

I understand that many teachers' pensions are not what they were. In addition to having to contribute more, they may not be fully indexed to inflation. This can be a huge hit in the value of your pension and your lifestyle in retirement. You need to take a look at what you need and want in retirement to answer how much you need to have in your RRSP. This is likely a difficult thing to do at this time in your life, because many things are likely to change as you get older. It comes down to the idea of spend now vs save and spend later. At least maxing out your TFSAs is a safe bet.

As to what Synergy was referring to in his optimize statement, look at the tax brackets. If you deduct too much due to RRSP contributions, you'd drop down into the next lower tax bracket and would not get as much of a benefit (refund) to your RRSP contribution.


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## alingva (Aug 17, 2013)

doctrine said:


> What happens *if* your pension fund is underfunded, and your benefits are cut back?


 IF??? It is not if. It is not even when because it is now. More you rely on the Gov more surprised you will be


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## alingva (Aug 17, 2013)

Siwash said:


> 150k household but we'll top out at 185k in 5 years


 And you do not have RRSP??? Good luck with the pension, you will be happy.


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## Synergy (Mar 18, 2013)

Guban said:


> As to what Synergy was referring to in his optimize statement, look at the tax brackets. If you deduct too much due to RRSP contributions, you'd drop down into the next lower tax bracket and would not get as much of a benefit (refund) to your RRSP contribution.


On top of not getting the optimal refund, you'd run the risk of paying more taxes in retirement should your tax bracket be higher during your retirement years - it's all about playing the tax bracket game! With those salaries I'd personally optimize your RRSP - in the order previously mentioned and especially in the years that you're "topped out". I don't think there's much harm in saving early in an RRSP - who knows what the future holds. Once you're closer to retirement - 10-15 yrs out, you can assess your situation, scale back on RRSP's at that point if needed, etc. RRSP's can also be withdrawn at any point as well - finance the purchase of your first home, during years of lower income (sabbatical, maternity leave, etc.). Remember, it's all about the tax brackets come retirement - you'll want to crunch some number at some point. The unforeseen is that you'll never know what the tax bracket will be 10,15, 20 yrs down the road.


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## Oldroe (Sep 18, 2009)

Our rrsp are for my wife's pension and also income to hedge against inflation.

When my pension starts to get a little tight we will take income from rrsp.


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## OnlyMyOpinion (Sep 1, 2013)

If you have the contribution room and the money to do so, contributing to your own RRSP's even though you have a DB plan will provide diversification (not all retirement eggs in one basket) and flexibility (career change, burnt out teacher wants to retire early, etc.). 
Max'ing out contributions, whether a combination of DB+RSP, DC+RSP, or just RSP and then getting the maximum tax deferral makes sense to us. The tax deferral (likely to give you a refund in April) can be applied to the TFSA. Remember also, your own RRSP is not 'locked in' so it could be accessed in the future if need be (ideally in a low income year).
With a good DB plan as 'back up', you have the 'luxury' of deciding to adjust RRSP contributions year to year if you need the money for something else. 
You may have the ability to add to the DB plan with some additional % of your own money? If so, then you'll also have to decide whether to do that or to steer it to your own RRSP.
We have a family member, also a teacher, who is opening a SDRRSP at TDW today so they have that ability to decide in Jan-Feb whether to contribute for 2013 and how much.
P.S. Remember, if you open a SDRSP there may be an annual fee (its $100/yr at TDW if you have less than $25k in the account)


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## bgc_fan (Apr 5, 2009)

Dmoney said:


> I'm assuming the taxpayer tops it up...
> Usually seems to be the solution


Didn't happen to Nortel.


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## wendi1 (Oct 2, 2013)

You're making a pretty good salary, now. If you are planning on saving, say, $500 a month, in either a TFSA or RRSP, I would max out the RRSP, take the tax refund, and put it in a TFSA.

More flexibility is better - and having too much retirement income is a very good problem to have. Remember, after retirement you can give great gobs of money to charities if you truly have excess (this will reduce your taxes, too). Because of your pension, I would be inclined to be 100% in US and Canadian equities in both my RRSP and TFSA.


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## Siwash (Sep 1, 2013)

thanks folks.. great info as usual… i think we will be contributing to that RSP!


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## MrMatt (Dec 21, 2011)

Dmoney said:


> I'm assuming the taxpayer tops it up...
> Usually seems to be the solution


Usually?

Normally when a company goes bankrupt, they just don't pay their obligations. I believe most provinces have a small fund that will pay a minimum, but even that is going to get politically unpopular. 

Why should taxpayers get saddled with corporate debt?


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## sags (May 15, 2010)

The Provinces charge the pensions an insurance premium to belong to their pension guarantee programs.

Unless big pension funds are underfunded when a company goes bankrupt, the Province is making money on the program.

Similar to CMHC making money..........as long as there aren't a lot of defaults.


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## My Own Advisor (Sep 24, 2012)

I agree with mostly what Wendi1 says.

We tend to optimize our RRSPs, that is, only put what we need to into these accounts to offset taxes every year and get a small refund in return. That amounts to about $5k each year for my wife and I.

Every year, we try and max out the TFSA.

Everything else goes on the mortgage and killing that. 

Although too much retirement income is a very good problem to have, you can still be smart about taxes today.


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## Siwash (Sep 1, 2013)

When Wendi1 says, _"Because of your pension, I would be inclined to be 100% in US and Canadian equities…"_ is the poster suggesting bypassing any sort of bond investment since my wife and I have DB plans? I have toyed with th idea of not bothering at all with bonds as I am inclined to get aggressive with our growth strategy right now (since we are a little late to the investing game and we have tremendous job security..). I figure that in 10 or 15 years we can shift some cash into bond index/ETF. We are both 25 years or so away from retirement..

I just need to figure out how much in RRSPs I need - If we contribute $5000 each we will see much in a tax refund (given out slurry is a combined $150 K for 2013 +/-)?


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## wendi1 (Oct 2, 2013)

I am suggesting that you do not need bonds/GICs in your RRSP (assuming you and your sweetie have the stomach for the roller coaster of the stock market). I would not go super aggressive, as I do not believe that increasing risk necessarily increases reward, but a nicely diversified equity position sounds good. Google "couch potato".

There is a good calculator on the EY site http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2013-RRSP-Savings.


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## Siwash (Sep 1, 2013)

wendi1 said:


> I am suggesting that you do not need bonds/GICs in your RRSP (assuming you and your sweetie have the stomach for the roller coaster of the stock market). I would not go super aggressive, as I do not believe that increasing risk necessarily increases reward, but a nicely diversified equity position sounds good. Google "couch potato".
> 
> There is a good calculator on the EY site http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2013-RRSP-Savings.


Thanks… Our cash needs to be accessed within three years, hence the need for GICs.. I think I will put off the bonds for little while. The GICs probably outside the registered accounts… This can get complicated but it's fun! 

Thanks folks...


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## Oldroe (Sep 18, 2009)

Seem to me that most people have rrsp and really never have a plan to use them. At 71 they are forced into a riff and still have no real plan.


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## My Own Advisor (Sep 24, 2012)

Quite possible Oldroe.

I know for us, we intend to contribute now and draw them down (RRSPs) prior to age 71. All money will be split between TFSAs and non-registered accounts.


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## OnlyMyOpinion (Sep 1, 2013)

*"contribute now and draw them down (RRSPs) prior to age 71"*
That's our intent as well. 
We've had the time to contribute and plan our retirement income streams (correctly we hope). 
On the other hand, those in our family who are over 71 waited till then to convert RRSPs to RRIFs and they use that income (+CPP,OAS) for living expenses, so don't really have the need to plan or optimize.


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## Eclectic12 (Oct 20, 2010)

Oldroe said:


> Seem to me that most people have rrsp and really never have a plan to use them. At 71 they are forced into a riff and still have no real plan.


 ... likely correct as most are at best reading the financial articles that cover the high lights. Just as some of those who have read about OAS clawback due to a combination of pension, CPP and RRIF withdrawal and are then convinced that everyone should skip an RRSP.


Though since the wrap up at 71 is part of the RRSP plan details - I don't believe "forced" is applicable. 


Cheers


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## coptzr (Jan 18, 2013)

doctrine said:


> What happens if your pension fund is underfunded, and your benefits are cut back? This is not an impossible scenario.


Some could only wish...there are people out there who don't have a small fraction of what is offered here. I'm not hating, its just the thought of costing the taxpayer to cover the bad case scenario. Here there are 2 full time employees making over $150k combined and not external investment strategy? I know many people like this, especially around the Ottawa area who are 100% dependent on the government worker cash for life mentality. 

My suggestion, step away, take anything extra you have and max out both of your RRSP and TFSA limits. There are other scenarios which can happen such as layoffs, termination, illness, life changes, which can make you look back when you are 60 yrs old and starting a new mortgage or getting a loan for a vehicle.


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## tiffbou2 (Jul 4, 2013)

What an interesting article. I am a teacher too (Ontario) and most of my colleagues, especially the ones with a teacher spouse, are going to be relying 100% on their pensions and feel they are sitting pretty because of them. Historically, the teacher's pension has been one of the most solid, but of course anything can change, right? I worry a bit about the number of baby boomer teachers who will be living longer and who we will be supporting with our pension contributions. My thought though, is that instead of clawing back pension allotments, I think they might instead take away our 85 factor and have us work longer. I hope not. I've been in 13 years and am set to retire with full pension at 55. In the 13 years I have been teaching, I've witnessed a lot of whittling away of our "perks". When my Dad retired 12 years ago, he got a $35K retirement gratuity in exchange for his bank of sick days. I couldn't have foreseen that, by now, not only is the gratuity long gone, but the sick day allotment cut in half and the banks we've built up over our careers wiped out completely. Nor could I forsee the forced unpaid days' leave we're now required to take. So anything could happen. 

Because of my pension, my family doesn't save as much in RRSPs as we could. My husband doesn't have a pension so we do save some, but are more concentrated for now on maxing out our TFSAs. My parents have lived the last 12 years solely on my Dad's pension plus the bit of supply work he has done without having to dip into his RRSPs at all, and they live pretty comfortably, take several trips a year, etc. Personally, if I were in your shoes, I'd max out TFSAs first before the RRSP. You can still invest within the TFSA.


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## tiffbou2 (Jul 4, 2013)

coptzr said:


> Some could only wish...there are people out there who don't have a small fraction of what is offered here. I'm not hating, its just the thought of costing the taxpayer to cover the bad case scenario. Here there are 2 full time employees making over $150k combined and not external investment strategy? I know many people like this, especially around the Ottawa area who are 100% dependent on the government worker cash for life mentality.
> 
> My suggestion, step away, take anything extra you have and max out both of your RRSP and TFSA limits. There are other scenarios which can happen such as layoffs, termination, illness, life changes, which can make you look back when you are 60 yrs old and starting a new mortgage or getting a loan for a vehicle.


It's not like our pension is a free ride at the taxpayers' expense. We contribute heavily over the course of a 30 year career. I'm at the top of my pay grid, and nearly one fifth of my monthly take home pay goes toward my pension contribution. Our pension contribution is also MANDATORY. Some teachers are not happy about, preferring to manage their own retirement, but are denied the option so that the pension fund keeps funds flowing in.


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## Mookie (Feb 29, 2012)

Siwash said:


> I'm a teacher… so is the Mrs… Should we just max out on TFSAs? Tell me why I should still bother with RRSPs (not a penny contributed up til now).


I suggest you max both your RRSP and TFSA, and pay down your mortgage as fast as possible as well if you can manage it. By not making use of your RRSP contribution room, you are just overpaying on taxes. Why not tax shelter as much money as you can until retirement?

You never know when life will throw you a curve ball. One or both of you could be laid off, or you could experience some kind of life altering injury, illness or other personal situation that could impact your future earnings. The worst that will happen is that you'll have "too much" money set aside, and you can then consider retiring early, or having a really luxurious lifestyle in retirement.

From personal experience, I had a solid well paid career with a crown corporation, with a DB pension, lots of vacation time, and great benefits. I thought for sure that there was no way I would ever be let go. Then after 13 years, my part of the company was outsourced to the private sector, some years later when the outsourcing contract was up for renewal, the crown corporation went to another outsourcer, and I was out of a job.

All those years, my wife and I focused on paying down the mortgage, and maxing RRSPs, and TFSAs. When I was laid off 18 months ago at age 44, I ran the numbers. With our house paid off, lots of retirement money saved, and a half sized DB pension, I figured that we could afford a modest retirement right now! That definitely took the pressure off of being let go.

I now have a temporary position back with the original crown corporation that I used to work for, and I'm just enjoying the ride, and adding some financial buffer to our retirement nest egg. Who knows how long this job will last, but I know that we'll be just fine no matter what happens now.


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## Siwash (Sep 1, 2013)

Mookie said:


> I suggest you max both your RRSP and TFSA, and pay down your mortgage as fast as possible as well if you can manage it. By not making use of your RRSP contribution room, you are just overpaying on taxes. Why not tax shelter as much money as you can until retirement?
> 
> You never know when life will throw you a curve ball. One or both of you could be laid off, or you could experience some kind of life altering injury, illness or other personal situation that could impact your future earnings. The worst that will happen is that you'll have "too much" money set aside, and you can then consider retiring early, or having a really luxurious lifestyle in retirement.
> 
> ...


Great story… You make some very compelling points...


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## realist (Apr 8, 2011)

How old are you? The answer IMHO is VERY different if you are younger vs close-ish to retirement. I am currently a federal employee in my 30s and I am trying to save as much as I can, mostly RRSPs and paying down my mortgage somewhat aggressively. For now I plan as if I don't have a pension for a couple of reasons. I may not be with the public service forever, I started late and would have to work until at least 65 to get my full pension, and frankly I doubt government pensions will survive another 30+ years of politics.


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## Sammi (Nov 12, 2013)

Im in a similar situation, Provincial government defined benefit pension plan. Im 31 and still young so I have a ways to go.

What I do is max out my TFSA and max out my RRSP and anything else goes to my non-registered account. My pension is expected to be more than enough to cover my expenses but who knows what might happen in the future. Having too much money is better than not enough.

Depending on how close I get to retiring, I will also potentially look at drawing from my RRSP sooner than later before 71.


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## fraser (May 15, 2010)

It is different for everyone and it very much depends on a number of key variables:

-your current tax rate, the anticipated rate when you withdraw the funds, your TFSA situation, your debt load and the interest that it bears, the type of RSP investments that you choose (income weighted funds vs capital appreciation funds), when you plan to withdraw, impact on OAP clawback, 

-some people feel that RSPs can be a no brainer. This is simply not the case.


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## OnlyMyOpinion (Sep 1, 2013)

Good points fraser, and others.
Beyond the original post, "I expect to have a good DB pension when I eventually retire, should I even bother with RRSPs", comments also note the need to understand your choices when it does come time to "cash out" and begin drawing down your various accounts for income, whether they include DB's, RRSP, TSFA's, non-registered, etc. Drawing down your accounts tax efficiently, ensuring you have enough, leaving an inheritance, etc. require you to become familiar with marginal tax rates, claw backs, minimum withdrawal rates... 
Those with a large RRSP account will face different choices than those with little or none. If you are young now and focussed on saving and investing wisely, the other side of the mountain may seem a long way off. But at some point you should become familiar with the choices and considerations you will face when it comes time to revers the flow of money.
A rehash of the same article here: http://www.theglobeandmail.com/globe-investor/personal-finance/taxes/avoid-the-tax-bite-when-its-time-to-tap-your-rrsp/article9051800/
and here: http://www.moneysense.ca/retire/how-to-tap-your-rrsp
Spending time to optimize income from massive account balances would seem to be a great problem to have though


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## Siwash (Sep 1, 2013)

realist said:


> How old are you? The answer IMHO is VERY different if you are younger vs close-ish to retirement. I am currently a federal employee in my 30s and I am trying to save as much as I can, mostly RRSPs and paying down my mortgage somewhat aggressively. For now I plan as if I don't have a pension for a couple of reasons. I may not be with the public service forever, I started late and would have to work until at least 65 to get my full pension, and frankly I doubt government pensions will survive another 30+ years of politics.


Somewhat similar scenario; I'm 41 and I stated late in teaching… I will have to work until 2039 (67) to get my full pension. I am a little worried we won't have the same pensions by then! 

I am hearing conflicting things… yes and no to RRSPs. More than a few opinions out there circulating about not even bothering with RRSPs if you have a DB plan… 

We are maxing out on TFSAs. They just seem more clear/simple to me… and advantageous.. You put your investments in there and never have to worry about paying a penny of tax on any growth invested within it. Maybe RRSPs are redundant? Maybe not...


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