Should I use my RRSP to pay down debt at retirement? + MORE Mar 24th

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It’s hard enough for professionals to sock away a chunk of money each paycheque to invest, but it’s even more difficult for 20-somethings who barely make enough to cover rent. But don’t despair; while it’s never too early to start saving, younger Canadians need to approach their portfolios in a far different way than older people might. Focus on retirement? Save that for later, says Jason Heath, a financial planner and managing director at Objective Financial Partners.
The top priority for people in their 20s should be to set aside money for shorter-term goals like paying for school, buying a car or building up a down payment for a house. While that makes intuitive sense, it’s not the message the financial industry tends to tell this cohort. “There’s a lot of push from the industry for these individuals to get their money into RRSPs,” Heath says. “But advice about being young and [the magic of] compound interest–that’s something they should try and ignore…

Q: I have a friend who has just retired and is carrying a debt load of $96,000. She wants to eliminate this debt over a fairly short period of time—about 4 years. The debt is a line of credit that she is paying 4% on. She’s a widow and has $423,000 in RRSPs. How would you approach this problem? Would it be okay to withdraw an arbitrary figure of say $15,000 per year from her RRSP until the debt is cleared? As of this year she will be in a lower tax bracket and by withdrawing it will lower her withdrawals when she has to convert to a RRIF in five years. What’s your advice?
– John
A: This is a good question. And this is a situation that many new retirees find themselves in—the carry-over of pre- retirement debt. I will say that four years to eliminate $96,000 of debt is very ambitious—let alone for someone whose income is now lower.
But your question raises more questions. You don’t mention your friend’s retirement income and whether she needs the income that the RRSP/RRIF will provide in the future…

When I was a full-time salaried employee (both for this publication and others), I always did my personal taxes using what is now TurboTax. I continue to do so now that I’m self-employed and (arguably) semi-retired. As I do our family’s 2016 taxes, I’m finding the dynamics of preparing the new return increasingly different than in the old days.
For me, it’s now actually a semi-enjoyable task, perhaps because I have more time and don’t have to grab hours from nights and weekends to do so. But what it really underlines is the importance of tax planning.
What I noticed this time around was some (to me at least) strange new T-slips to enter.
As a full-time employee, the key tax document on the income side is the T-4 slip issued by employers, while a crucial document on the tax-minimization side is the RRSP receipt. In semi-retirement, you may see less of those documents and more of their mirror-image counterparts: Instead of a T-4 to record earned income, you may be receiving T4A slips that tell you (and the Government) how much pension income you received in the prior calendar year and how much (if any) tax was withheld at source…