Tricycle or Bicycle?
The deadline for RRSP contributions for the 2015 tax year is February 29th.聽 The practice of making RRSP contributions has a more far-reaching result than just deferring taxes.聽 It can determine whether RRSP investments will become an important source of retirement income for you.
The authors of The Pension Puzzle pose an interesting question: 鈥淎re you on a tricycle or bicycle?鈥澛� We are given a peek into a chapter which explains these modes of transportation.聽聽 When I read this, I understood how this makes logical sense.聽 The diagram below identifies the wheels which drive retirement. These are your sources of retirement income.
Here鈥檚 Bruce Cohen and Brian Fitzgerald鈥檚 explanation:
Think of the retirement income system as a tricycle with one wheel for government programs (such as old Age Security), another for employer-sponsored retirement plans and a third wheel for your own savings (such as an RRSP).聽 Instead of a tricycle, many will head into retirement on a bicycle with just two wheels, because they don鈥檛 have employer plans.聽 It鈥檚 extremely unlikely that you鈥檒l be on a unicycle with just one source of income unless you鈥檙e very poor or maybe a recent immigrant.
Since the publication of the third edition of The Pension Puzzle in 2007, new government legislation has been introduced:聽 Pension Splitting, Tax Free Savings Accounts and a revamped Canada Pension Plan.聽 Although it鈥檚 difficult for books of this caliber to stay current with constantly-changing legislation, other information in this particular book remains useful.聽 Such tools like the Worksheet, Where Will You Get Your Retirement Money, will never become outdated.聽 The authors want Canadians to think what sources of income will replace the pay cheque they receive today.
Worksheet 3 (Chapter Two/Page16)
WHERE WILL YOU GET YOUR RETIREMENT MONEY?
Government programs:聽聽 聽
Old Age Security (OAS)聽聽 聽聽聽 聽聽聽 聽
Canada or Quebec Pension Plan (C/QPP)聽聽 聽
Guaranteed Income Supplement (GIS)聽聽 聽
Provincial low-income supplement聽聽 聽聽聽 聽
Other聽聽 聽聽聽 聽聽聽 聽
Employer-related programs:聽聽 聽聽聽 聽聽聽 聽
Registered Pension Plans (RPP)聽聽 聽
Supplementary Employee Retirement Plan (SERPs)聽聽 聽聽聽 聽
Group RRSP
Deferred Profit Sharing Plan (DPSP)聽聽 聽
Other
Personal Plans:
RRSP聽聽 聽聽聽 聽
Taxable savings & investments聽聽 聽聽聽 聽
Sale of home and/or vacation property
Employment or business income聽聽 聽聽聽 聽
When your time is limited, finding the right book to address your specific needs can be extremely difficult.聽 Financial planners provide information so you have a better understanding why contributions to an RRSP (Registered Retirement Savings Plan) or TFSA (Tax Free Savings Account) are important.聽 When I read books I am hunting, not only for information, but also for a better way to explain this necessary information.聽 Authors like, Bruce Cohen and Brian Fitzgerald, turn complicated into common sense.聽 I would venture to guess you never thought about driving a bicycle or tricycle in retirement.聽 The challenge now is to examine which one you will be driving.
