When not to contribute to a retirement savings plan

Where it Counts

While a Registered Retirement Savings Plan (RRSP) contribution probably makes sense for most people, there are some situations where other alternatives make more sense. 

Below I list three situations where an RRSP contribution probably does not make sense:

Carrying debt.

Debt is typically very expensive especially when being financed at double-digit interest rates. Even an unsecured loan from a financial institution will typically charge interest in the mid single digits for clients with a good credit history. There is simply no investment available that will provide a similar guaranteed after-tax rate of return as simply paying down debt. Sometimes the best investment you can make is saving a dollar in interest. One strategy, depending on your tax rate, could be to make your RRSP contribution and use the refund to pay down debt.

Already in the 

lowest tax 


Since withdrawals from a RRSP are counted when calculating income-tested benefits such as the Old Age Security (OAS) and Guaranteed Income Supplement (GIS), provided by the government for low-income seniors, Canadians already in the lowest tax bracket might be better off avoiding RRSPs. 

To make your RRSP contributions worthwhile you should, at a minimum, make contributions in a tax bracket, in your working years, at least 10 per cent higher than the one you’ll be in at retirement.

Higher tax 

bracket in 


If retirement income is going to push you into a higher tax bracket, tax deferral is the only benefit provided by a RRSP. 

Other options such as paying down debt or investing in a Tax Free Savings Account (TFSA) might be more attractive.

Please remember to always consult your investment advisor before taking action.  




Written by Stuart Kirk, CIM Stuart Kirk is an Investment Funds Advisor with Manulife Securities Investment Services Inc and a Retirement Planning Specialist with Hicks Financial Inc.

The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Investment Services Inc or Hicks Financial Inc (www.ghicks.com). Stuart can be reached at stuart@ghicks.com.


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