This is the time of year when you tell yourself to save more and contribute more to your RRSP. Yes to the first one but the second, perhaps not.

Certainly Canadians need to save more than the current rate of four per cent of income. However, the default destination for those savings, an RRSP, isn’t necessarily the right one.

Anyone who is likely to qualify for the Guaranteed Income Supplement (GIS) after age 65 is better off with a non-registered investment account or a Tax Free Savings Account (TFSA). Mandatory RRIF withdrawals could result in a reduced or eliminated GIS.

GIS eligibility is reduced as net income rises and disappears entirely at about $16,000 for singles and $21,500 for couples (Old Age Security does not count as income).

 

At the other end of the scale, those likely to have significant incomes after retirement from a combination of pensions, non-registered investments and other income could face not only a high post-retirement tax rate, but claw back of OAS and a reduction in their personal exemption.

The latter is not well known and can be a considerable shock. Though OAS claw back doesn’t kick in until a net income of around $68,000, the age amount tax credit for those 65 and over will be reduced once net income reaches roughly $33,000.

TFSAs are great alternatives for those wanting to save outside an RRSP. However, you can only deposit $5,000 annually. Another alternative are non-registered investment accounts, though you will pay tax on income or capital gains.

A final “savings” alternative is to pay down debt. Even though your interest costs may be low, every dollar you put on debt is a form of savings.

And last week I included details of a contest to win a one-on-one consultation with me. Unfortunately the link was not live. But it is now at my website, alisongriffiths.ca.

Alison Griffiths is the author of the upcoming book Count On Yourself: Take Charge of Your Money. Reach her at alisongriffiths.ca or griffiths.alison@gmail.com.

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