A.T. Financial Newsletter
Expecting significant retirement income?
A TFSA may be better than an RRSP
Many Canadians face a tough choice at the start of each year,
regarding whether to contribute to their Registered Retirement
Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). Both
popular tax-planning tools have advantages. Which is best for you
depends on a variety of factors. Your projected retirement income
provides a good clue.
If your projected marginal tax rate will be lower after you retire
than what you are paying now, an RRSP may be the better option.
That's because the tax deductions you get when you contribute to
an RRSP are likely to be larger than the tax you pay later when you
withdraw the funds.
However, some Canadians will actually have higher incomes
when they retire. For example some retiring employees have taken
to "double dipping", after they leave their first careers. This involves
collecting a pension, but continuing to provide work as private contractors in their
old felds of expertise. (A retired teacher
continuing to take on substitute teaching mandates would be
an example.) In such cases, their marginal tax rates when they
retire could be higher that when they were working. For them,
a TFSA may be a better option.
TIPS AND TACTICS TO HELP YOU GET AHEAD
Why you may want your kids
to leave home broke
Most Canadians would shudder at the prospect at sending their
kids out into the world with no financial assets. However, often
they do worse - many are forced to leave
home not just broke, but owing money as well.
The average student debt load after
graduating from a four-year undergrad
program now sits at around $27,000.1
This provides a strong indication that
parents are having a hard time helping
their kids pay their education expenses.
Worse, those costs are rising. Canadian
full-time students in undergraduate
programs paid 3.3% more on average in
tuition fees for the 2013 / 2014 academic
year this fall than they did a year earlier.
This follows a 4.2% increase in
2012 / 2013.2
Getting a head start on those increases is crucial. A first step
should involve consulting us, to make sure you are investing
enough in your kids' Registered Education Savings Plans (RESPs)
or an alternative dedicated account. They will be far better off if
they leave home merely broke - as opposed to in debt.
1 The Canadian Federation of Students
2 Statistics Canada, The Daily, Sept. 12, 2013
Canadians working longer to finance kids' education
Many parents are responsible and well intentioned and, as a result, have
invested signicant sums in their kids' Registered Education Savings Plans
(RESPs). However according to a recent survey by a major Canadian financial
institution, 60% of Canadian parents with children under the age of 25 are
putting their own retirement goals on the back burner, to help pay for a child's
schooling. Fully a third of parents surveyed even took on debt to help fund
their kids' education.1
There are several reasons that parents are forced to put themselves into this
uncomfortable position. These include a tough job market, rising education
costs and increasing pressures on students to take on additional studies, such as
advanced degrees. However, the most important reason is that many parents wait
too long before starting to put money aside.
Make sure that does not happen to you. Talk to us about balancing your savings
for your children's education and your own future.
1 CIBC poll, conducted by Leger Marketing, June 2013
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