RRSP vs TFSA – How Much Will it Grow?

Not knowing the difference between an RRSP and a TFSA, could cost you tens of thousands of dollars. As the debate between the two retirement investment opportunities grows, there is an important factor to consider – the growth.  An RRSP gives you an immediate cash refund on your tax return that is hard to resist.  A TFSA’s benefit comes in the tax-free nature of the withdrawals at retirement.  

Timing is Everything

The best bang for your buck on an RRSP is when you are contributing at a high level of income and plan to withdraw at a lower level of income during retirement.  Income grows with our age and experience.  The older you are, the more likely it is that you will be in a higher income bracket.  Therefore, RRSPs become more beneficial later in life.  

Example (based loosely on a personal income of $70K/year at a 30% combined income tax rate.)

A $10,000 lump sum, invested by the taxpayer at the age of 35, will grow for 30 years before it is withdrawn in retirement.  At a 10% average rate of return, this turns into $200,000 in year 30 or when the taxpayer turns 65.

If this is in an RRSP, yes you would receive an immediate refund of $3,000, but your tax bill on the withdrawal of the $200,000 would be somewhere close to $90,000 at 65.  With a TFSA, yes you forgo the $3,000 refund, but have $200,000 tax-free in your retirement account. At face value, the TFSA retains roughly 45% more of your future nest-egg.

Invest the Income Tax Refund

What happens though, if you invest the initial tax refund into the RRSP as well.  $3,000 saved for 30 years at 10% interest will grow to $60,000.  This means that the total retirement account after 30 years will be valued at $260,000 less a 30% combined marginal tax rate will mean your investment’s tax paid value is $182,000 in an RRSP.  The value of the TFSA with this same model would be $200,000, an $18,000 improvement.

What Does it Mean?

The farther away you are from retirement, the more attractive a TFSA is.  If you are close to retiring and making income above $70,000/year, an RRSP is more advantageous.  TFSA’s are growth- vehicles that benefit the young, not only in an increased retirement fund. However, there are many complicating factors involved in making these investment decisions including:

·         Accessing funds prior to retirement

·         RRSP Contribution limits

·         RRSP to RRIF complications

·         TFSA changing contribution amounts

·         Required retirement income is high (over $70K/year)


If you need help navigating through these tricky retirement saving strategies, give Shaun a call at Sunshine Coast Consulting.  His experience and education can bring you peace with your financial decision making.  

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