SISIP: Did you say RRSP?

Diane Kennedy, CFP, Financial Planner, SISIP Financial, Comox — As financial planners, we praise the tax advantages of Registered Retirement Savings Plans (RRSPs) but often hear, ‘No thanks; I have a great pension plan; I don’t need an RRSP’. While it is true that the Canadian Armed Forces (CAF) does offer an excellent pension plan, it is also true that all financial situations are unique, even though your friend or co-worker may have the same rank, monthly allotment, and years of service as you, your financial needs and goals may vary.

RRSPs can add significant value to your financial plan during your working years, in retirement and within your estate plan. A contribution to an RRSP reduces your taxable income today, which means you pay less tax now and are putting money away to grow, tax-sheltered, for the future. You can save even more money by strategically planning your RRSP withdrawals. Let’s look at some situations that people may only sometimes consider when considering an RRSP.

Is the cost of buying a home too high in your current province?

If you plan to buy a home at a future posting or in retirement, consider using the RRSP Home Buyers’ Plan (HBP). The HBP is for more than just first-time homeowners. You can use the HBP more than once, provided you and your spouse have yet to own a home in the four years before the home purchase. You can ‘borrow’ up to $35,000 tax-free from both your and your spouse’s RRSP to put towards the payment of your new home. By contributing to your RRSP, you can save towards your new home while receiving a tax deduction, which you could also reinvest to compound your savings strategy.

What’s on your retirement bucket list?

If you are married or in common law, you can contribute to a spousal RRSP. This will reduce your taxable income today and create a future nest egg (a sum of money saved for the future) to be withdrawn by your spouse as income in retirement. You can then allocate the spousal RRSP to pay for the fun stuff, such as travel, sports, and hobbies, while your CAF pension can be used to pay the monthly and annual household expenses (bills, maintenance, etc.).

Have you calculated survivor income needs yet?

Having funds in an RRSP can help fund any shortfalls in your estate plan. When a retirement member passes, the surviving non-military spouse is entitled to a 50 per cent survivor’s pension. But will that be enough to ensure your spouse has a comfortable income for life? Saving through an RRSP or spousal RRSP can help fund future income needs, not to mention that generally, it will be taxed in a lower bracket.

Talk to a financial advisor at your local SISIP Financial office and ask how an RRSP can benefit your specific financial plan.