This financial coach says RRSP season is a big gimmick

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A financial coach recently did something a bit unusual for that line of work – she took some shots at RRSP season. In a blog post, Anita Bruinsma called RRSP season The Big Gimmick and likened it to a Hallmark holiday for financial institutions. I appreciate a contrary view on matters of personal finance, so I asked Ms. Bruinsma to do a Q&A for this newsletter. He’s our exchange by e-mail:

Q: Anita, can you tell us briefly about your background in the financial sector?

A: Personal finance and investing have been a part of my life since I graduated university with a business degree in 1997. I worked at Toronto-Dominon Bank for almost 25 years, starting out in a bank branch, and then working various jobs within wealth management and mutual funds. I spent the last decade or so of my corporate career in investment management. I hold the Chartered Financial Analyst (CFA) designation.

Q: You went on a bit of a rant about RRSP season in a recent blog post. How can it be bad to focus attention on retirement saving?

A: Putting the spotlight on retirement planning is a good thing. But RRSP season isn’t so much about retirement planning as it is about getting a tax break by contributing to an RRSP before the deadline. Feeling pressured to make a contribution can result in a rushed decision that might not be based on any analysis. This can lead to poor decisions. Squeaking in a contribution before the March 1st deadline might also make someone feel like they did their retirement planning when in fact, they have no plan.

Q: Isn’t the best strategy for RRSP and TFSAs to contribute on a regular, automatic basis, like every payday?

A: For someone with a steady job working for an employer, yes, contributing regularly is probably a great idea. But not everyone has this predictability, which makes planning an RRSP contribution more challenging. In some cases, people need to see what their taxable income for the year turns out to be before knowing how much they should contribute, if anything.

Q: People seem more into tax-free savings accounts than RRSPs lately because they love the idea of tax-free withdrawals. Are people making sound decisions on TFSAs versus RRSPs?

A: In my experience, people still love RRSPs because of the tax break up front. I also think there is generally more familiarity with RRSPs than TFSAs, especially among older Canadians (and by older, I mean 40+). It’s true that many people open a TFSA just because they hear it’s a good idea – and that’s OK. There is no downside to having a TFSA and in fact, I think pretty much everyone with savings should have one.

Q: People who do put money in RRSPs often cite the tax deduction as the big motivator. What do you think people should do with the tax refund they get from an RRSP contribution?

A: If they have high-interest rate debt, such as credit card debt or a car loan, it probably makes sense to pay it down. With variable mortgage rates rising, it might even make sense to put the refund on the mortgage. Investing it is also great. But let’s be real – life is expensive and it’s nice to have a little buffer in your bank account or treat yourself to something fun.

Q: The new Tax-free First Home Savings Account is expected to debut in April. Is this a no-brainer place for Gen Z and millennials to put their investments?

A: For those who have any interest in buying a house, yes. This is a great account, where you get the best of the RRSP (tax deduction) and the TFSA (paying no tax on income earned in the account). Even if you don’t end up buying a house, that’s OK – you can just transfer the money to an RRSP. I’ve been putting this account on the radar of my younger clients.

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