RRSPs are the most overrated way to save for retirement.
Partly it’s because retirement is in the name, so everyone assumes it’s the best place to start.
Partly it’s accountants who like to push the immediate tax benefit (which is cool, don’t get me wrong, but you need to be re-investing the return you get for the math to even be close, and even then, it still might not make sense).
Partly it’s bank advisors who just mindlessly help people open them up and start contributing because it’s what people say they want.
Partly it’s that TFSAs didn’t exist before 2009, so your parents won’t have as much experience with using them and might not realize how much better they are in the long run.
And partly it’s that people aren’t aware of how Whole Life insurance can be used to fund retirement in a tax-advantaged way.
There are lots of reasons, but they all miss that the big drawback of RRSPs is that every single dollar you withdraw is taxed as income.
So you reduce your tax bill right now. But down the line, you pay income tax through the nose! And most people just don’t think enough about that part of that equation.
Because if they did, they’d max out their TFSA first and foremost.
They’d look into firing up a Whole Life policy that can be used to fund retirement with way better tax treatment.
And if they earned a high income, they’d weigh the benefits of using a non-registered investment account, where dividends and capital gains might receive better tax treatment than withdrawals from an RRSP.
The name of the game is minimizing your tax bill over the course of your lifetime. RRSPs are generally overrated in this regard. They might, in the end, be one of the tools you use (especially if your employer is offering to match your contributions!), but they aren’t the best place to start for most people.