Vol. 12, #17.3 – March 16th, 2020– ALLAN GOLD’S BLOG
By Allan Gold, lawyer, lecturer and author.
Pardon me. Just before filing away your RRSP file for this year, let’s take a moment together so that I might share a few of my final thoughts. I’ll “hazard a guess” that you might want to hear what I have to say. Furthermore, to summarize and provide a few take-a-way points and extra tips, here are my RRSP ‘Golden’ rules in ‘Do and Don’t’ format for your perusal, notably to wit:
- OPEN an RRSP – it’s a Canadian retirement savings vehicle to which contributions are tax deductible on an annual basis, up to a certain amount. REMEMBER that you can do it with as little as $100. But NOTE that some RRSP accounts only allow you to hold mutual funds. If uncertain or delaying the move to saving for retirement (in a big way), I will quote Benjamin Franklin, who so wisely said, “Don’t put off until tomorrow what you can do today.” It’s good advice for all of us generally. And it’s a really sound suggestion when it comes to RRSP in particular. Furthermore, I’ll offer you a few more reasons, which, I call “Goldisms” that might prompt you to take immediate RRSP action, notably,
- If you think that you’ll do it next year (or the year after that), it’s quite probable that when you reach that point, you’ll just defer it once again. And if so, the tendency is that you’ll repeat such behavior time and again.
- If you think that it’s best to wait until you’ll be better able to afford it, you could be right, but on the other hand, you could be wrong. First, you might lose your job. Second, your children will be growing up and your out-of-pocket disbursements shall typically increase accordingly. Third, your monthly expenses could jump higher as you aspire for a greater life style. As a result, your disposable income may actually shrink in the future and thusly cause you to be less able to afford making RRSP contributions.
- If you think that it’ll be alright if you do it when you get older, think again. The longer you wait, the more you lose in appreciation from compounding over the long term. More significantly, I must remind you about the unpredictability of life. There could be a huge natural disaster hitting your town. Or something may happen to you personally, restraining you from working full time or creating a major unforeseeable expense. And as times get worse, money headaches would push RRSP far down the list.
- If you think RRSP is a stretch for you, think again. Many of you have added exercise to your daily routine, haven’t you? Your rationale might be to keep bodies at a healthy weight and also reduce the risk of high blood pressure? If so, why don’t you add a weekly RRSP payment to your payables. If so, in this way, you’ll likely reduce the risk of financial pressure in later years.
- If you think that you can sidestep RRSP by saying, “Forget it,” I say that’s not a good thought. Indeed, you’re not just burying your head in the sand, but more, you’re gambling with your life. You see, when you don’t make contributions, you’re betting that you won’t live to a ripe old age. And if you lose that bet and live longer, you’ll be poor. Put that way, I’m sure that your answer won’t be the same. Indeed, I assert that you’ll see RRSP neglect as being much too big of a gamble!
- THINK carefully about having a self-directed RRSP. Yes, Virginia, there’s such a thing as a “Do it yourself RRSP.” But with this “DIY” project, a hammer and nails aren’t needed! Seriously though, KNOW that a self-directed RRSP is an account, not an investment. As per Investopedia, it’s “a type of RRSP, or registered retirement savings plan, whose owner determines the asset mix held in the trust….” Indeed, it’s the one that allows you to hold many different types of investments “under consolidated” within one single account. If you go this route, KNOW that you’ll need to become more informed about investments and be attentive and proactive to a much greater degree than with other plan types.
- CONSIDER arranging regular, automatic contributions to your RRSP. If you choose this method, it won’t be necessary to remember each time when you should make a transfer-deposit. The added benefit is that the funds will be out of your checking account before you know it. And this will increase the chance of the money being saved as opposed to being spent. To this end,
- SET up automatic contributions.
- START with $25 or more per month. Of course, if a younger worker with a large mortgage and small children, it may be difficult to contribute even $100 a month to your RRSP, so make it as much as you possibly can.
- INCREASE the installment sum as your income rises. KNOW that the augmentation of your monthly contributions each year by only a small amount can make a huge difference afterwards.
- BE careful not to over contribute and end up having RRSP over-contribution woes.
- REVIEW your RRSP portfolio and modify your investments therein when permitted and as need be. Of course you can change your mind – indeed, tweaking is always in season! I like the quote attributed to Bashar, who said, “If you can’t change your mind, then you’re not using it.”
- DO some asset protection planning. (N.B. This means taking assets that are subject to creditors’ claims, called nonexempt assets, and repositioning them as assets that are out of the reach of creditors’ claims, called exempt assets.) One method is to have the RRSP or (registered) Retirement Income Fund (RIF) proceeds held under a life insurance contract. Indeed, certain of these are protected from creditors, provided the proceeds have not been deposited fraudulently to avoid paying creditors, and so long as the insurance policy names a beneficiary. However, NOTE that while it’s generally OK to protect your assets of today from lawsuits in the future, you cannot go in with the intent of trying to avoid making payments to existing creditors. But if you try anyways, there’s the risk that a creditor may secure a judgment from a court ruling that such is a fraudulent conveyance, and thusly available to satisfy your debts.
GOLD’S TOP-10 QUESTIONS EXTRA
Surprise surprise, I have a bonus question, which I think may actually tie my number one of last week. It addresses the situation of the Registered Retirement Savings Plan (RRSP) on death. And the question is….
Q. What happens to your RRSPs when you die?
A. The account holder is deemed to have sold his/her RRSPs (or RRIF) just before death. The fair market value of the RRSPs is included in the deceased’s estate as taxable income of the deceased for the year of death. The liability to pay the taxes generally falls on the deceased’s estate. However, there’s a BIG exception. It’s when and where there’s a tax-deferred rollover – this happens only where certain conditions are met. First, a qualified rollover must be to a “qualified beneficiary.” He or she can only be one of the following: a spouse, a common-law partner, a (financially dependent) child and/or a (financially dependent) grandchild. Second, he or she must be expressly named as the RRSP beneficiary- this can be done by will.
So there you have it. I repeat the questions put at the outset. Retirement planning? Contribute to an RRSP? Concerned about senior living? Thinking about Seniors and money? If you answered yes to any of them, you’re now more knowledgeable on these areas. And if you’ve been asking yourself, What’s an RRSP? What are the benefits of an RRSP? Do Canadians wonder how RRSPs work? Which is better RRSP or TFSA? you’re now better informed. And with my nudge to action through this series, it’s likelier that you’ll act more resolutely in this regard.
Bottom line, Know that RRSP is a good news and bad news subject. It’s good because it means more money in your wallet when you’re ready to retire. It’s bad because too many people don’t take advantage of the fiscal opportunity of RRSP …to the fullest extent possible; and that’s a shame! Finally, to all of you RRSPers out there, I say, “When it comes to RRSP, just do it bigger and as often as you can.”
P.S. Here’s an RRSP poem especially for you.
It’s important to have an RRSP
No, it’s not heavy like a barbell
Don’t be Tweedle dumb or Tweedlecheap
It’s as easy as 1-2-3 – just pick up your cell
Then put down your green, “mon cheri,” my sweet pea
Indeed, it’s the difference between retiring and retiring well*
D. PREVIEW OF NEXT IN THE ELDER LAW BLOG SERIES.
I believe that with this blog series, I may have started you along the way to being more aware of elder law. To address what you need right now, my next subject will be the “CORONAVIRUS (COVID-19) PANDEMIC,” this through the lens of an attorney practicing in the area of elder law, (having dealt with founders-owners of family businesses). Want to get more information about the current topic, retirement planning, or other areas of elder law written by an “avocat,” one of the family law lawyers, family lawyers Montreal, practicing in the elder law field? See you next time. It won’t take too much time. Remember my byline – it’s “Gold’s Legal Minute*GLM*!” And please don’t forget to join my professional community by entering your e-mail at the prompt.*
E. NOTICE – CAUTION –DISCLAIMER.
The material provided herein is of a general nature, strictly for informational purposes. The interpretation and analysis is not to be misapplied to a personal situation with a particular set of facts. Under no circumstances, are the herein suggestions and tips, intended to bring a reader to the point of acting or not acting, but instead, the hope is that they are to be a cause for pause and reflection. It is specifically declared that this content is not to be a replacement of, or a substitution for, legal or any other appropriate advice. To the contrary, for more information on these presents, related subjects or any other questions, it is the express recommendation of the author that everyone seek out and consult a qualified professional or competent adviser.
* ©/TM 2020, 2019, 2015-2018, Allan Gold, Practitioners’ Press Inc. – ALL RIGHTS RESERVED
** ©/TM 2006, 2008, 2018 Allan Gold, Practitioners’ Press Inc. – ALL RIGHTS RESERVED