One of the most common investment questions Canadians ask themselves today is, “Which is better, TFSA or RRSP”?
Here’s the good news – it doesn’t have to be an either or choice. Why not do both? Below are the features of both plans to help you understand the differences.
Tax Free Savings Account (TFSA)
- Any Canadian resident age 18 or over may open a TFSA. Contribution is not based on earned income. There is no maximum age for contribution.
- For 2018, the maximum contribution remains at $5,500. For 2019, that increases to $6,000.
- There is carry forward room for each year in which the maximum contribution was not made. For those who have not yet contributed to a TFSA, the cumulative total contribution room for 2018 is $57,500. It will increase in 2019 to $63,500. Read more
According to the Canadian government website, Old Age Security is the largest pension program in Canada. OAS pays a monthly income to seniors who are age 65 and over. The amount of the payment is not based on past income but rather how long you resided in Canada after the age of 18. If you have turned 65 you are eligible for the maximum OAS income if you have resided in Canada for at least 40 years after turning 18 AND have resided in Canada for at least 10 years prior to receiving approval for your OAS pension. There are some exceptions for those who don’t fully qualify based on temporary absences during that requisite 10-year period.
For the last quarter of 2018, the maximum monthly OAS payment regardless of marital status is $600.85. Don’t get too excited as, as the title suggests, the government can clawback part or all of your OAS benefit depending on your taxable income. As of 2018, you can earn up to $75,950 in annual taxable income (up from $74,788 in 2017) without affecting your payment. For every dollar earned over this threshold amount however, you will be taxed (referred to as an OAS recovery tax) at a rate of 15%. Once you reach taxable income in the amount of $ 123,386 the government will have fully recovered or clawed back the entire amount of your Old Age Security. Read more
New Rules governing the Canada Pension Plan took full effect in 2016. Under these rules, the earliest you can take your CPP Pension is age 60, the latest is 70. The standard question regarding CPP remains the same – should I take it early or wait?
If you take it at the earliest age possible, age 60, your CPP income will be reduced by 0.6% each month you receive your benefit prior to age 65. In other words, electing to take your CPP at age 60 will provide an income of 36% less than if you waited until age 65.
CPP benefits may also be delayed until age 70 so delaying your CPP benefits after age 65 will result in an increased income of 0.7% for each month of deferral. As a result, at age 70, the retiree would have additional monthly income of 42% over that what he or she would have had at 65 and approximately 120% more than taking the benefit at age 60. The question now becomes, “how long do you think you will live?” Read more
There are a number of obstacles that could potentially de-rail a comfortable retirement. These include marriage breakdown, a stock market crash, and being sued. Another huge obstacle would be the diagnosis of a life threatening critical illness affecting you or your spouse. While it might be difficult to insulate yourself against some of the threats to retirement security, Critical Illness insurance goes a long way to mitigate the financial disaster that could result from a change in health as we approach retirement.
Considering that the wealth of many Canadians is comprised of the equity in their homes and the balance of their retirement plans, having to access funds to combat a dreaded illness could put their retirement objectives in jeopardy. Imagine that you are just a few years into or approaching retirement and you or your spouse suffers a stroke. The prognosis is for a long recovery and the cost associated with recovery and care is projected to be substantial. Statistics show that 62,000 Canadians suffer a stroke each year* with over 80% surviving* many of whom would require ongoing care. Since 80% of all strokes happen to Canadians over 60 those unlucky enough could definitely see their retirement funding jeopardized. Read more