Categories > Retirement Solutions

Are spousal RRSPs still useful?

Spousal RRSPs have traditionally been used as an income-splitting strategy in retirement.  You can contribute to your spouse’s RRSP but claim the tax deduction yourself. Your total contributions (to your own and your spouse’s plans) are subject to your own RRSP contribution limits. In retirement, withdrawals are taxed in your spouse’s hands rather than yours, as long as the contribution has remained in the plan for at least three years. So you benefit from their lower tax rate in retirement, while reducing your own tax liability during your working years. But, in October 2007, the government introduced new pension splitting rules that allow Canadians to split pension income with their spouse. Here are situations where the spousal RRSP is still useful: • If you are planning to retire before age 65 and don’t have a registered pension plan; spousal RRSPs allow income-splitting before age 65 whereas pension income-splitting normally begins at age 65 • If you are saving for a home (each person can withdraw $25,000 under the Home Buyers’ Plan) • If you’re 71 or older and can no longer contribute to your own RRSP, you can still contribute to your spouse’s RRSP if you have earned income and your spouse is younger than 71 • If you and your spouse want to make the balance of assets in your household more equal.

What is Longevity Risk?

Longevity risk is the danger that you will outlive your money – and it is becoming a greater threat to a healthy retirement with every year that goes by. Why is longevity a threat? Because we are living longer than ever before. Since the turn of the last century, life expectancy beyond age 65 has grown from 11 to almost 20 years for men; and from 12 to 22 years for women. Under current projections, individuals nearing retirement should prepare for the possibility of living another 20 years – and conceivably much longer. That requires not only a significant amount of savings, but also an investment strategy that accounts for a retirement that could compare to a working career in length. It’s also important to understand how your needs will change over time and the funding implications of that evolution. For example, traditional retirement goals, such as travel, may need to give way to practical considerations such as funding of mobility devices and long-term care. To fully account for the impact of longevity, consider meeting with me to review these risks and your current financial plan to make sure your retirement needs will be met.