The most common mistakes advisors & investors make in RRSP season

Read more: How to keep retirement in mind for millennial and Gen Z clients | Wealth Professional

Because most people earn their highest incomes in the years leading up to retirement, Dahmer sees a bias towards the immediate tax savings that come from an RRSP. While he is not anti-RRSP by any means, he believes the greater benefit of that registered account is the tax-free compounding opportunity it offers, as the taxes will still have the be paid once the RRSP converts to a RRIF and gets withdrawn. The TFSA offers an alternative vehicle for tax-free compounding that Dahmer believes more advisors should consider in the context of their clients’ retirement spending plans.

Because RRSP withdrawals are taxed, they can prove quite costly for clients when a major expense comes around. Dahmer cites the example of a new car, costing $40,000 – the full price of which has to be withdrawn from an RRSP. With taxes and old age security clawback, the withdrawal required for that car ends up costing significantly more than the $40,000 the car is worth. Dahmer believes alternatives to the RRSP can be used for those larger, foreseen expenses.

So why do advisors place such a focus on RRSPs? Dahmer believes that RRSP season is a convenient time to grow AUM by agreeing with clients who see RRSPs as the be-all and end-all of their retirement savings.

“Every financial advisor wants to grow their book, and the easiest way to do it is to agree with people who want to add for their RRSP. For most financial advisors RRSP season is their selling season,” Dahmer says. “True planners go at it from the standpoint of holistically looking at how people’s spending will be impacted in the future and closer to retirement figure out what the right balance should be for various investment types.”

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