RRSPs and Critical Illness – Retirement & Safety Nets
Many of us contribute our hard-earned dollars into our RRSPs so that we can retire comfortably one day. Because of the taxation of RRSP withdrawals, money contributed should stay inside the RRSP until you are retired and in a lower tax bracket. This makes these funds somewhat illiquid. But what happens if you get sick and need access to money? Withdrawing funds from your RRSP is not a good solution. It can be costly from a tax perspective, and you will never get back the contribution room that you have already used. And remember, these funds were earmarked for retirement. One strategy worth exploring is to use your annual RRSP tax-refund to pay an annual premium into a Critical Illness policy (which should include a Return of Premium). The RRSP will allow you to save for retirement and save yourself from income tax while you are working and in a higher marginal tax bracket. The Critical Illness insurance will provide you with an income safety net until you retire. If you get sick while you are working, you don’t have to worry about using funds from your RRSP to pay any medical expenses or replace income, if you need to take time off of work. Your retirement nest egg will remain intact. The Critical Illness insurance will provide you with a lump-sum tax-free benefit that you can use to pay medical expenses or replace your net income. If you never get sick, in retirement, you can exercise the return of premium rider and you will get 100% of your contributions back. This can be an additional source of retirement savings. This strategy allows you to build a sound retirement plan, while still protecting this plan from any unforeseen illnesses, keeping you on the right track!
Insurance products are provided through Hollis Insurance Agency. Only services offered through HollisWealth®, a division of Industrial Alliance Securities Inc. are covered by the Canadian Investor Protection Fund.
This information has been prepared by Luft Financial. Opinions expressed in this article are those of Luft Financial only and do not necessarily reflect those of HollisWealth®. Furthermore, this does not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors.
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