# RRSP Option for Early Retirement



## Marvin (Feb 10, 2011)

Hello,

Ive been searching the web for advice and my search has lead me to this forum. Before I begin here is my info:

Me (39 years old)
Income: 78k
pension: Ive been paying into a government pension for 11 years.
Assets: 460k House
25k GIC
10k TFSA GIC
1,300 Mutual fund TFSA
33k HISA 
Liabilities: none

Wife
Income: Maternety leave around 15k this year. She might be out of work for an additional year (unpaid)
Assets: 30k HISA
10k TFSA
50k RRSP
Liabilities: none


Since we have no mortgage or car payments we are able to save about 2200 per month. 300 goes into my Mutual fund tfsa, 200 goes into her RRSP (we used to contribute 400 when she was working) the rest goes into HISA. We are contributing the baby's 100 government cheque to an RESP.

I want to retire at 56 or 57. At that point I will have about 26 years paid into a government pension - enough to give me 50-60% of my top 3 years. I have never contributed to an RRSP of my own and I have about 70k in contribution room. (this has been reduced by my pension adjustment of course)

Are RRSP's a good option for me. My rational is that I can offset the reduced pension I get (because of early retirement) if I start heavily contributing to RRSPs now. So many people tell me that RRSPs are a bad choice if I have a government pension. But I do not want to stay the full 35 years in order to recieve a full pension. 

Im not sure what to do. Should I keep maxing out my TFSA year after year or should i start contributing as much as I can to my RRSP for the next 15 years.

Any thoughts? I would appreciate some advice!

Thanks


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## steve41 (Apr 18, 2009)

I could do this, but I am getting lazy. Look, bring down RRIFmetic's free demo. It will allow you to play around with all the stuff you've mentioned. There is a learning curve, but since this is your 'life', you may find it well worthwhile. The free demo is time-crippled (it dies after 60 days) but there should be plenty of time to go thru the learning curve, and do some creative cash flow/tax planning. (You will end up a lot further ahead than if you asked your typical financial advisor to do it)

RRIFmetic

Once you get it built, I can help you thru the tricky bits.


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## OhGreatGuru (May 24, 2009)

First of all you are to be congratulated for being in such great financial shape with no debts at this stage in your life.

On the RRSPs, you and your spouse should be looking at projecting your retirement incomes, and trying to create some balance between them. You can use your RRSP room to contribute to a spousal RRSP for your wife. If you are going to have a healthy pension, it may not make sense to add to your RRSP. But with a spousal RRSP, you get the tax deduction, but your wife is the annuitant, so the retirement income will be paid to her at hopefully a lower tax rate.

You have a lot of money sitting in HISA (which I assume to be so-called high interest savings accounts) and non-registered GICs. I realize you may need access to some of this money during your wife's impending maternity leave, but otherwise you should be looking to invest it in something longer term with better returns. For starters, put another 5K in each TFSA (mutual funds) this year if you haven't yet used this year's contribution room.


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## Marvin (Feb 10, 2011)

Thanks for the advice Steve & OGG. I will definitely download the application you provided a link for. OGG: thanks for the pointer...it makes sense to contribute to my wife's RRSP since she will probably have a lower income when we retire.


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## cannon_fodder (Apr 3, 2009)

I think after taking OGG's advice the next step would be to max your TFSAs. It won't affect any income-tested sources of retirement income. You can give your wife the money so she can put it into her TFSA.

In fact, depending on your situation, perhaps maxing your RRSP contribution into a spousal account is not the best way to go. You may have enough deductions right now that the more RRSP contribution you make, the less effective the tax refund is. Its why there is a school of thought that at a certain MTR threshold opinion favours TFSA contributions. If your contribution nets you a 24% refund but you anticipate the withdrawal of that money coming out at retirement at 27% MTR (because of other taxable income) then that is not ideal.

If steve41's RRIFmetic is too scary, perhaps this will help you crawl before you walk - 
http://www.taxtips.ca/calculators/tfsavsrrspcalculator.htm


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