I must admit I'd never approached it from a timeframe point of view. Perhaps that's because of my age, RRSPs have been a fundamental building block for our retirement planning for as long as I can remember, while TFSA's are the newcomer on the block. We're in the fortunate position of being able to use both, but what's got me thinking recently has been helping my adult children work through the decision process on which is better for each of them and why.Garry Marr wrote:The registered retirement savings plan, 60 years running as of 2017, has had a big head start when it comes to personal financial planning in Canada, but after eight years of existence, the tax-free savings account appears to making up ground fast.
As they now both do battle for your hard-earned savings, the right vehicle for you can come down to a number of factors, not the least of which might be your plans for the money and whether you’ll be accessing it in the short-term, medium term or long-term.
It seems clear to me that the liquidity benefits of the TFSA make it an ideal choice for building up an emergency fund for younger Canadians (i.e. my adult children).Garry Marr wrote:One short-term problem becoming increasingly more common for savers could be sudden employment and a need for cash fast. A withdraw from your RRSP would face a withholding tax plus it would count as income in the year you had employment.
Because we'd long bought and paid for our house, I'd never considered this perspective, but I can see how it applies for my children.Garry Marr wrote:Your time horizon depends on how you define it but a house leans more towards that medium term and the RRSP has a plan to, at least partially, address housing prices.
Once upon a time it seemed easy to forecast that you'd be in a lower income tax bracket in retirement. But over the course of my investment career, I've seen firsthand that this basic assumption doesn't always hold true. We've moved provinces, which brings new tax brackets and tax rates into the mix that I would have never considered 20+ years ago. If I look back, the range of tax brackets and tax rates has swung quite a bit. Without looking them up specifically, my instinct confirms the statement that it's not the case anymore of being in a lower income tax bracket in retirement.Garry Marr wrote:The whole idea of an RRSP is being in lower income tax bracket in retirement, when you withdraw the money.
"It's just not the case anymore. ..."
<snip>
In your retirement, TFSA withdrawals will have the advantage of not counting towards as income in terms of clawback of Old Age Security
I've bookmarked the FP article (actually saved a PDF version) and added it to the investment reading folio that I'm maintaining for my adult children for the day if/when they come more interested in managing their own investments. But that's a topic for another discussion.