Who does and doesn't need an RRSP
Contrary to what some of the advertisements plastered all over your local bank branch this time of year would have you believe, as many as half of all working Canadians might not need to invest in an RRSP to fund their retirement.
The host of CBC's Lang & O'Leary Exchange, Amanda Lang, crunched the numbers and came up with some surprising statistics:
- 85 per cent of public sector workers have a defined benefit pension plan and may not need additional savings in retirement.
- 10 to 15 per cent of private sector workers have corporate pension plans, which should allow them to live comfortably in retirement without RRSPs or other investment vehicles.
- Taken together, the above figures add up to about one-third of working Canadians who have some sort of pension plan and may not need retirement savings.
- Another 20 per cent of Canadians don't make enough money to invest in an RRSP. Their income from the Canada Pension Plan will be commensurate to what they earned while working.
Before investing in an RRSP, Canadians should first think carefully about their income, Lang told Peter Mansbridge, the host of CBC News: The National.
"If it's likely to climb in the years ahead, you may be better off waiting to invest in an RRSP to get the biggest bang out of the tax credit later when you are in a higher tax bracket," she said.
The main advantage of the RRSP tax break is to bump you into a lower tax bracket by lowering your income by whatever amount you put into the RRSP, but if you are already in a high tax bracket and are likely to remain in one even after you retire, you don't really benefit from this advantage like someone whose income is expected to be significantly lower in retirement than during their working life.
For the wealthy, it's only a question of whether to pay the tax now or later and not.
To learn more, watch the full segment above.