Understanding the Dynamics of RRSPs and TFSAs through Comprehensive Modelling

Which account should you choose, a registered retirement savings plan (RRSP) or a Tax-free savings account (TFSA)? This is one of the most common decisions that Canadians must make when it comes to investing, but it will also elicit some of the most passionate responses. RRSPs especially get a lot of undue skepticism, with some even labelling it as a scam. Today we take a deep dive into both of these savings accounts, exploring the downsides and benefits of each, and how to decide which account is right for you based on your savings goals. With the help of Conquest Planning, a specialized, in-depth modelling tool, we look at a range of scenarios incorporating different variables, like income and family size, and break down our analysis regarding the RRSP vs. TFSA decision for each scenario. We discuss key factors to consider, including the basic personal amount tax credit, which allows RRSPs to act as a tax flow-through, and the guaranteed income supplement (GIS), which can impact retirement planning. Our conversation also examines how to approach family size and longevity, as RRSPs become more advantageous with longer lifespans. Join us today to learn about the benefits and flexibility of each of these accounts, the surprising ways RRSPs often outperform TFSAs, and find out which one is right for you!

Key Points From This Episode:

(0:00:20) An introduction to the RRSP vs. TFSA debate.

(0:08:11) How we used the Conquest Planning tool and the scenarios we analyzed.

(0:10:34) Taxation and contribution considerations and strategies for RRSPs and TFSAs.

(0:20:11) An analysis of scenario one; $60,000 income and no children. (0:22:38) Basic personal amount tax credit; how it allows RRSPs to act as a tax flow-through.

(0:27:20) The Guaranteed Income Supplement (GIS) and its impact on RRSP vs. TFSA analysis in different scenarios.

(0:36:16) How GIS is tied to Old Age Security (OAS) payments.

(0:41:12) An analysis of scenario two; a couple with two children, and the impact of the Canada Child Benefit on RRSP vs. TFSA contributions.

(0:45:21) The impact of mortality and longevity on RRSP and TFSA in various scenarios.

(0:47:01) Main takeaways from today’s scenarios and the advice our hosts would give to different clients regarding TFSAs and RRSPs.

(0:50:50) Why RRSPs are of greater benefit if you live longer compared to TFSAs.

(0:52:13) Our aftershow section: listener feedback, what Ben is working on regarding renting versus buying, the zombie apocalypse, and more.

Links From Today’s Episode:

Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ 

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://x.com/RationalRemindRational Reminder on TikTok — www.tiktok.com/@rationalreminder

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.caBenjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ 

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/

Cameron on X — https://x.com/CameronPassmore

Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/

Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/ Mark McGrath on X — https://x.com/MarkMcGrathCFP

Brady Plunkett on LinkedIn — https://www.linkedin.com/in/brady-plunkett-712489105/

Lukas Fleck on LinkedIn — https://www.linkedin.com/in/lukasfleck/

Flossing for your Finances, Personal Financial Strategies for Dentists — https://us06web.zoom.us/webinar/register/9017236574029/WN_7O_JdvejRhmh-_LleBNRmQ#/registration Episode 317: Kevin Milligan — https://rationalreminder.ca/podcast/317

Papers From Today’s Episode: 

‘Tax Uncertainty and Retirement Savings Diversification’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2799288