The Difference Between an RSP, RRSP, and TFSAs
Finding the right savings plan to suit your needs can be simple if you know the differences between each option. Using a combination of RRSPs, RSPs and TFSAs will help diversify your contributions, decrease taxes, and move up your retirement date by increasing your savings.
Integrate all types of savings plans or use two to build a plan based on your investment goals and future financial needs.
What is an RSP – (Non-Registered) Retirement Savings Plan
- Unlimited annual contribution limit
- No legislated minimum age to implement
- No legislated maximum age to implement
- Carry-forward is not available
- Not a tax-deductible contribution
- No monthly penalty on excess
- Not a tax-deferred or tax-free investment
- Taxable disposition upon withdrawal
- Withdrawals impact federal income
- Interest is deductible on loans
- Available for use as collateral
- Tax-deferred or tax-free transfer to spouse
- Loss denied on transfer-in-kind
What is an RRSP – Registered Retirement Savings Plan
- Annual contribution limit based on earned income
- No legislated minimum age to implement
- Maximum age to implement is 71
- Carry-forward is available
- A tax-deductible contribution
- Monthly penalty on excess
- A tax-deferred or tax-free investment
- Fully taxable upon withdrawal
- Withdrawals are not added to contribution room
- Withdrawals impact federal income
- Interest is not deductible on loans
- Not available for use as collateral
- Tax-deferred or tax-free transfer to spouse
- Loss denied on transfer-in-kind
What is a TFSA – Tax-Free Savings Account
- Annual contribution limit – no earnings requirement
- Legislated minimum age to implement is 18
- Maximum age to implement is 71
- Carry-forward is available
- Not tax-deductible
- Monthly penalty on excess
- A tax-deferred or tax-free investment
- Tax-free upon withdrawal
- Withdrawals are added to contribution room
- Withdrawals do not impact federal income
- Interest is not deductible on loans
- Available for use as collateral
- Tax-deferred or tax-free transfer to spouse
- Loss denied on transfer-in-kind
A financial advisor or professional financial planner will be able to determine which plan or combination of plans would be best suited to your lifestyle or individual needs. You want to be thoroughly researched and benefit from each type of savings plan, whether they are tax-free, collateral or even contribution limits. Find out by contacting us.
Preparing for Your Retirement
You’ve worked hard for your retirement. Get the most out of your time and hard work by carefully creating a financial plan to keep you comfortable and healthy. Consider the following points to help you prepare for the greatest adventures that lie ahead.
Your Investments
Does your savings plan or investment portfolio reflect your retirement plan? Make an appointment with a financial advisor to review your retirement savings and whether you are on track to retire when and where you want.
Review your portfolio
What items make up your retirement savings plan? Are they RSP, RRSP, TFSA, pension plans, savings accounts, or other investments? Consult with a financial advisor to give you a forecasted income statement for each year you are in retirement.
Additional Income
Retirement income can also include the Canada/Quebec Pension Plan, Old Age Security or Guaranteed Income Supplement. When do you expect this income to become accessible and how much will it contribute to your overall income?
Budgeting Based on Your Savings
What are your expenses, and have you adjusted the amount to account for inflation? Have you factored in your health and whether you will need to supplement healthcare or personal support at home? Compare this figure against the totals from your forecast and additional income sources. Will your projected income accommodate the retirement you were dreaming of, or will you need to change your retirement lifestyle or plans to suit your budget?
Mark your Calendar
By the end of your 70th year, you should convert your RRSP to an RSP to avoid tax implications.
Exceeding your Savings
Look into additional sources of income that can help supplement your retirement such as government or employer pensions with investments.
Careful preparation with an experienced financial advisor will help you transition into your golden years. Take advantage past expertise by starting your retirement transition plan today.
Strategies to Address Retirement Challenges
There can be roadblocks when it comes to building your retirement savings plan. A great retirement income strategy can prepare you for what lies ahead. Get the information before you start out.
Retirement income strategies include:
- Annuities
- Systematic Withdrawal Plans
- Guaranteed Lifetime Income Benefits
In order to create an optimal plan for your retirement, a financial advisor can help you determine and prepare for negative factors that could negatively affect your retirement income:
Retirement and Inflation
How much commodities cost can determine how far your savings will stretch in your retirement years.
Retirement and Market Returns
Whether or not there are poor market returns at the beginning of your retirement will establish how fast your savings will be exhausted.
Retirement and Longevity
Did you save enough money to live comfortably, or will you outlast your money?
Some flexible options should be considered should there be an undesirable situation requiring you to reassess your savings plan. These include:
Retirement and Access to Your Money
Is your money liquid and are you able to access it easily if you have an emergency or unexpected expense?
Retirement and Reactive Behaviours
If your investments are subjected to market volatility, before you make risky or reactive counteractions, consult with an advisor to see if you will ultimately undermine your financial plan.
Retirement and Estates
If you’re looking to leave some money for your beneficiaries, the size of the inheritance you want to leave will dictate how much money you can spend in retirement. Construct a plan that includes the features which will benefit your situation. Annuities, Systematic Withdrawal Plans and Guaranteed Lifetime Income Benefits can address different challenges and help you in the long run.
Annuities and Other Sources of Guaranteed Lifetime Income (Defined Benefit Pension Plans, Canadian Pension Plan (CPP) and Old Age Security (OAS)
- Guaranteed lifetime income
- Regular, pre-determined income
- Safe from market volatility
- Safeguarded from interest rate changes
- Locked-in and not easily accessible
- Assets are invested without consultation
Systematic Withdrawal Plans (SWPs) linked to portfolios of mutual funds, stocks bonds, GICs etc.
- You are consulted on how your assets are invested
- Variable income in monthly installments
- Growth potential in consideration of inflation
- Income installments are not certain
Guaranteed Lifetime Income Benefits including Guaranteed Minimum Withdrawal Benefits (GMWBs)
- Certain lifelong income
- Portfolio growth to match inflation
- You control how assets are invested
- Predictable and maintainable
- Could increase your income
- An added fee is required to guarantee income
Careful preparation with an experienced financial advisor will help you develop your investment portfolio and determine how to divest your money. Take advantage past expertise by starting your cost and benefit comparison of the different categories.