Unsure of the best way to plan for your retirement? Registered Retirement Savings Plans (RRSPs) are one of the most popular retirement savings plans in Canada.
In fact, according to Statistics Canada, it remains one of the three “pillars” of Canadians’ retirement income systems, with RRSPs accounting for 29 per cent of the share of elderly Canadians’ total income, according to latest available data from 2020.
But while RRSPs have some clear benefits, they also come with pitfalls that can affect your long-term financial health.
Below, I’ll briefly explain how RRSPs work and outline some of the drawbacks of using an RRSP as your sole retirement plan. Then, I’ll share some viable alternatives to help you better prepare for retirement!
The RRSP was introduced by the government in 1957 to bridge the gap between everyday workers and those who already enjoyed the tax benefits of registered retirement pension plans.
Canadian workers in all lines of work could open an RRSP with a bank and start saving for their retirement, taking advantage of tax-deductible contributions and tax-deferred growth -- even if they didn’t work for an employer with a pension plan.
The introduction of the RRSP also offered tax deductions to businesses willing to match a percentage of their employees’ contributions, resulting in a win-win for both parties.
Here are the basics of how an RRSP works:
At inception, the RRSP was likely the best solution for retirement savings as there were very few alternatives. Comparing it to the other options available to Canadians today, though, there are some disadvantages.
While contributions to an RRSP are tax-deductible, and investments grow tax-deferred, the withdrawals during retirement are fully taxable.
This means that if you have a high income in retirement, you could end up paying a large portion of it to taxes.
One of the significant disadvantages of RRSPs is the penalty for early withdrawals. If you withdraw funds before retirement, you will need to pay a withholding tax on the amount you take out. You’ll also permanently lose the contribution room in the future.
This restricts access to your savings in case of financial emergencies. This is also why I recommend creating an emergency savings account, so you have immediate access to your money when life throws you a curveball.
Withdrawals from an RRSP during retirement can affect your eligibility for government benefits such as Old Age Security (OAS) and the Guaranteed Income Supplement (GIS).
The additional income from RRSP withdrawals can reduce the amount of these benefits you receive, impacting your overall retirement income.
I’m not here to tell you that RRSPs are all bad. In most cases, they are still a great retirement tool to take advantage of, especially if you work for an employer that matches some of your contributions, as it’s basically free money.
However, there are a few alternatives to consider using in addition to an RRSP to help you save for retirement.
The Tax-Free Savings Account (TFSA) is easily one of the best savings and investment vehicles available. These accounts can be used to hold investments like stocks, bonds, ETFs, and more.
The best part is that any growth in these accounts is 100 per cent tax-free, and you can withdraw profits without paying taxes. This isn’t the case with an RRSP.
The First Home Savings Account (FHSA) can be a valuable retirement savings tool, especially if you decide not to buy a home. Like an RRSP, contributions are tax-deductible, and the funds grow tax-free.
If you don't use the FHSA for a home purchase in 15 years, you can transfer the funds to an RRSP or RRIF without affecting your existing RRSP contribution room, which allows you to maximize your retirement savings with additional tax-advantaged space.
The FHSA is a very new account, but the flexibility it provides makes it a very interesting option for financial planning.
Certain types of permanent life insurance, such as whole life or universal life, include a savings component that grows over time. This cash value can be accessed through loans or withdrawals, potentially offering a source of retirement income.
While these policies are more complex and typically more expensive than term life insurance, they provide both a death benefit and a tax-advantaged savings component. However, these products are complex and come with higher fees, so they should be considered carefully, often as part of a broader estate planning strategy.
If you aren’t sure about which to contribute first, consider starting by maximizing your TFSA contributions and then put any other extra funds into an RRSP. This will help diversify your retirement funds, and TFSA withdrawals won’t affect your future government benefits like OAS or GIS, making it a more flexible option than the RRSP.
Keep on reading for some great tips on how to get the most out of your TFSA.
Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers on Blueprint Financial.
Do you have a question, tip or story idea about personal finance? Please email us at dotcom@bellmedia.ca.
Former U.S. president Donald Trump said Thursday he thinks he's 'entitled to personal attacks' on his Democratic rival, adding he's 'very angry' at Vice-President Kamala Harris and questioning her intelligence.
The federal government says the Ukrainian army can use military equipment provided by Canada inside Russia.
An Australian weather presenter who suffered a panic attack on air is using the moment to spread awareness about the mental health problem.
Now that Minnesota Gov. Tim Walz is U.S. Vice-President Kamala Harris ' running mate, his drunken driving arrest from 1995 in Nebraska — long before he entered politics — is getting renewed scrutiny.
Five individuals, including two doctors, have been charged in connection with the 2023 death of actor Matthew Perry, according to the U.S. Attorney's Office.
Canada is selling its former Manhattan residence, which used to house its consulate general in New York.
Hong Kong welcomed the birth of its first locally born giant pandas on Thursday, with their mother becoming the world's oldest first-time mother of its kind on record, the theme park that houses them announced.
Holding candles, hundreds of thousands of women marched through the night in cities across India, to protest the brutal rape and murder of a young female doctor in a hospital.
Health Canada says it is 'closely monitoring' the resurgence of mpox cases, after the World Health Organization declared a public health emergency of international concern on Wednesday. Here's what you need to know about Canada's response to the current outbreak.
A Barrie man was ordered to appear in person for a contempt of court hearing Wednesday for repeated courtroom outbursts and vulgar language directed toward a female judge.
The University of Winnipeg has finished its investigation into a cyberattack that crippled the school this spring, and found more people may have been impacted.
An elementary school teacher from B.C.'s Lower Mainland has been handed a two-day suspension for incidents of professional misconduct, which included briefly taping the word 'poop' onto a student's arm.
Transit police have recovered nearly $100,000 worth of Lululemon merchandise from an alleged theft ring in B.C.'s Lower Mainland.
More than three weeks after a wildfire forced them to flee, Jasperites will soon be able to return to their beloved town. But there is anxiety among the few who found refuge in the neighbouring town of Hinton, about 45 minutes east of Jasper.
Hurricane Ernesto is expected to track 'well south' of Nova Scotia by the time the storm approaches the Atlantic region on Monday, the Canadian Hurricane Centre says.
Xiaotu was looking for a soulmate but the typical routes of meeting people on campus or swiping online dating apps just weren’t cutting it for him.
Now that Minnesota Gov. Tim Walz is U.S. Vice-President Kamala Harris ' running mate, his drunken driving arrest from 1995 in Nebraska — long before he entered politics — is getting renewed scrutiny.
A Detroit judge who ordered a teenager into jail clothes and handcuffs on a field trip to his courtroom will be off the bench while undergoing 'necessary training,' the court's chief judge said Thursday.
Former U.S. president Donald Trump said Thursday he thinks he's 'entitled to personal attacks' on his Democratic rival, adding he's 'very angry' at Vice-President Kamala Harris and questioning her intelligence.
President Joe Biden is still smarting from having been forced to abandon his reelection campaign more than three weeks ago.
A reputed Peruvian gang leader suspected in nearly two dozen killings in his home country was arrested Wednesday in New York by U.S. immigration authorities.
The federal government says the Ukrainian army can use military equipment provided by Canada inside Russia.
Canada is selling its former Manhattan residence, which used to house its consulate general in New York.
Labour Minister Steve MacKinnon has rejected the Canadian National Railway Company's request to intervene in the ongoing labour dispute between the company and the union representing railway employees.
Health Canada says it is 'closely monitoring' the resurgence of mpox cases, after the World Health Organization declared a public health emergency of international concern on Wednesday. Here's what you need to know about Canada's response to the current outbreak.
An Australian weather presenter who suffered a panic attack on air is using the moment to spread awareness about the mental health problem.
After years of the mpox virus' spread throughout the Democratic Republic of Congo (DRC), the World Health Organization (WHO) has declared it a public health emergency of international concern.
If you use soft plastic fishing lures when spending a day on the water, you might want to change it up.
The first of four supermoons this year rises next week, providing tantalizing views of Earth’s constant companion.
The Berlin Zoo's newest baby pygmy hippo made her public debut on Thursday, a day after her name — Toni, inspired by German soccer star Antonio Rüdiger — was chosen from more than 20,000 suggestions.
Los Angeles police have arrested four suspects in the fatal shooting of former 'General Hospital' actor Johnny Wactor.
Five individuals, including two doctors, have been charged in connection with the 2023 death of actor Matthew Perry, according to the U.S. Attorney's Office.
The new season of 'Emily in Paris' will have many of the same elements as the first three: daring fashion, flirty romance and workplace drama. One thing that has changed? The lead actor's confidence.
Labour Minister Steve MacKinnon has rejected the Canadian National Railway Company's request to intervene in the ongoing labour dispute between the company and the union representing railway employees.
Less than two years after it first hit the skies, Canada Jetlines has grounded its planes and ceased operations amid a cash crisis that caused it to become the third Canadian carrier in less than a year to stop flying.
RBC and TD Bank Group have agreed to pay tens of millions of dollars in penalties after being charged by the U.S. Securities and Exchange Commission over recordkeeping violations.
A Regina man has been using his love of carving and games to create a unique treasure hunt in Wascana Park.
For some it’s the dream: a flight pass around Europe and the Mediterranean. For others, of course, it’s an ecological nightmare.
While the warm weather lingers, some residents are already feeling the spine-tingling in anticipation of Halloween.
The Toronto Raptors open their 2024-25 campaign at home against Cleveland as they look to bounce back from a disappointing season.
Canada rugby coach Kingsley Jones is feeling bullish about his team these days.
Canada has risen two spots in the FIBA men's basketball rankings, despite failing to medal at the Paris Olympics.
Newer vehicles come with a slew of standard safety features that make driving feel safer for teenagers getting behind the wheel.
Saskatchewan is getting $16 million from the federal government to process a rare element.
Mazda is warning approximately 71,000 vehicle owners in Canada who have not yet repaired their cars following seven past safety recalls to urgently have them serviced.
A Regina man has been using his love of carving and games to create a unique treasure hunt in Wascana Park.
A volunteer firefighter and director of public security for the town of Harrington, northwest of Montreal, made a dramatic rescue of a couple trapped on a flooded roadway during heavy rain.
The Toronto District School Board this week revealed the three graduating Grade 12 students who scored the top averages across all public high schools in the city for the 2023-2024 academic year.
A Nova Scotia resident has been given an award for his selfless actions during a tragedy earlier this year on the other side of the country.
An Ottawa woman has been reunited with her dog after he was stolen nearly a year ago.
Hollywood legend Mark Hamill stopped by a Winnipeg recording studio to do some voice acting work while in the city.
Nathalie Meijer will never forget that night she was leaving a boring college party and happened to meet Juan Lucio, who was doing the same.
The town of Moosomin in eastern Saskatchewan plans to double its population by offering $30,000 cheques to those building a home in the community.
After posting about a recent trip to Jasper, Alta., actor Bryan Cranston heaped more praise on some of Alberta’s other majestic mountain destinations.
When the McDougall Creek fire sparked on Aug. 15, 2023, no one could’ve imagined it would mushroom in size, consuming homes, infrastructure and livelihoods in the West Kelowna area with damage that will take years to address.
The Mountie leading the national team formed to assist with investigations into extortion schemes targeting South Asian businesses is urging potential victims to avoid paying perpetrators.
Two people were taken to hospital by helicopter from a rock climbing area in Squamish Thursday afternoon, according to paramedics.
One man is dead and another is in hospital with life-threatening injuries after being shot by police in Innisfil.
Toronto police are investigating a stabbing in North York that left one person injured.
Marineland has been ordered to pay nearly $85,000 in fines and restitution after it was found guilty under Ontario’s animal cruelty laws of three charges related to its care of three black bears.
Two people were taken to hospital in stable condition after a fully-involved house fire in the northeast community of Falconridge on Thursday afternoon.
Calgary city crews will now be repairing 21 pipe segments on the Bearspaw feeder main later this month – five more than initially thought.
A plush lobster stuffy named Lucky is on an epic journey clawing his way across Canada.
Ottawa Mayor Mark Sutcliffe said he will not be participating in any events organized by Capital Pride this year following the organization's statement earlier this month expressing solidarity with Palestinians.
Ottawa's new professional women's soccer team will take to the pitch at TD Place next year as the Ottawa Rapid FC.
A family in Orléans will need to make a few minor repairs to one of the walls in their home, but it was all to get the family cat back.
The man accused of starting the shootout in Dollard-des-Ormeaux on Montreal's West Island renounced his right to a bail hearing in court on Thursday.
Two cases of tuberculosis have been detected at Bordeaux Prison, also known as the Montreal Detention Centre, since the start of summer, according to exclusive reporting by Noovo Info.
After repeated flooding on their street, residents in Vaudreuil have begun collecting signatures to demand the city take action.
Alberta Premier Danielle Smith says her government will introduce legislation on pronouns in schools after classes begin in September.
The community is rallying around a Sherwood Park man and his son who were hit by a vehicle earlier this week.
Mounties say the search continues for one of two suspects in a deadly roadside shooting near Calgary that is believed to be motivated solely by robbery.
A major celebration was underway in southwest Nova Scotia on Thursday, with tens-of-thousands of people from all over the world gathering for "The Congres Mondial."
A new bridge opened in New Brunswick Thursday, replacing the previous bridge connecting two bordering countries for the past century.
The Government of Canada transferred $24 million to New Brunswick under the Canada Community-Building Fund.
Manitoba is officially banning the use of cellphones in classrooms starting this school year.
The University of Winnipeg has finished its investigation into a cyberattack that crippled the school this spring, and found more people may have been impacted.
The World Health Organization (WHO) declared mpox a global health emergency for the second time in two years on Wednesday.
A Regina man has been using his love of carving and games to create a unique treasure hunt in Wascana Park.
Hot and dry weather has continued to push along crop maturity across Saskatchewan as producers are now reporting harvest is six per cent complete.
Saskatchewan RCMP have confirmed the identity of human remains that were found near Moose Jaw in April.
An arrest has been made in the random attack and attempted abduction of Wellesley, Ont. woman.
Residents in Waterloo Region are being asked to conserve water for approximately one week while an important water pipe is repaired.
Ontario’s Minister of Economic Development and the MPP for Kitchener-Conestoga are expressing their disappointment with how a contentious land assembly process has been handled in Wilmot Township.
A Saskatoon non-profit that helped at-risk youth through art and employment opportunities has closed its doors.
Saskatchewan is getting $16 million from the federal government to process a rare element.
If you use soft plastic fishing lures when spending a day on the water, you might want to change it up.
Six new wildland fires were confirmed in the Northeast Region by early evening on Thursday, according to Ontario Forest Fires.
The downtown Sudbury mall now known as Elm Place received approval this week for a rezoning application to allow the mall to convert some retail space into warehouse, distribution and commercial self-storage facilities.
Five individuals, including two doctors, have been charged in connection with the 2023 death of actor Matthew Perry, according to the U.S. Attorney's Office.
Sarnia Police have arrested one person following a reported assault near the intersection of Indian Road North and Exmouth Street. Multiple witnesses told CTV News London they were woken up by screaming and yelling shortly before 7 a.m.
A fire has displaced residents of a multi-unit century home in Sarnia.
A progress report on the Climate Emergency Action Plan (CEAP) forced city councillors to confront some tough realities about the likelihood that London can achieve its first set of emissions targets in 2030.
One man is dead and another is in hospital with life-threatening injuries after being shot by police in Innisfil.
Barrie Mayor Alex Nuttall is using his strong mayor powers for the first time in relation to one of the most contentious issues he's faced during his nearly two years in office.
A Barrie man was ordered to appear in person for a contempt of court hearing Wednesday for repeated courtroom outbursts and vulgar language directed toward a female judge.
With the return to the classroom just around the corner, the United Way Centraide Windsor-Essex Chatham-Kent will soon be handing out hundreds of backpacks filled with school supplies to registered families in need in in the region.
A 41-year-old contractor has been charged with defrauding homeowners out of nearly $600,000.
Windsor police have charged two suspects with sexual assault, forcible confinement, and uttering threats after an investigation in Amherstburg.
Pro-Palestinian protesters who set up an encampment at Vancouver Island University in Nanaimo, B.C., have been told to pack up within 72 hours.
The one-day suspension of a Victoria firefighter has erupted into a political firestorm after a Conservative Party of B.C. candidate accused the B.C. premier and the city's mayor of involvement in the disciplinary decision.
The leader of the B.C. Conservatives sat down with Jordan Peterson for a podcast interview Thursday.
When the McDougall Creek fire sparked on Aug. 15, 2023, no one could’ve imagined it would mushroom in size, consuming homes, infrastructure and livelihoods in the West Kelowna area with damage that will take years to address.
Thieves in B.C.'s Okanagan recently made off with an enclosed trailer containing a classic muscle car, local police say.
A former leadership rival to BC United Leader Kevin Falcon is joining John Rustad's British Columbia Conservatives to run in Kelowna in the fall election.
Lethbridge post-secondary schools are trying to help out students feeling the financial pinch, as a new survey reveals a quarter of Canadian students have thought about dropping out due to increasing costs.
The grandparent scam is making the rounds again in southern Alberta.
A retired University of Lethbridge professor is being recognized by having a newly-discovered aquatic parasite named after him.
Six new wildland fires were confirmed in the Northeast Region by early evening on Thursday, according to Ontario Forest Fires.
The mayor of Sault Ste. Marie is looking to expand the Ontario Lottery and Gaming Corp.’s headquarters in the city.
Ontario Provincial Police in Atikokan are investigating a suspicious residential fire.
A pair of young filmmakers take aim at Newfoundland’s one-of-a-kind superhero, who patrolled the airwaves of late night television.
The chair of the board of regents at Memorial University in Newfoundland and Labrador has resigned after he was criticized for forwarding a pro-Palestinian campaign email he received from an alumna to her father.
A first-of-its-kind fashion series is running until Aug. 12 in St. John's, N.L.
The Shopping Trends team is independent of the journalists at CTV News. We may earn a commission when you use our links to shop. Read about us.
