Most Canadians are planning an early retirement, on average targeting the age of 61, and they’re favouring TFSAs over RRSPs to help them get there, according to poll results released by CIBC.
Around two-thirds (68%) of Canadians have investments and half (49%) of them are directing more funds to their TFSA than their RRSP, the poll of 1,500 Canadians found.
About one-third (32%) said they contribute more to their RRSP, while a fifth (19%) said they split their contributions evenly.
“People like the flexibility. With TFSAs, you can contribute the money and then take the money out whenever you want,” said Jamie Golombek, managing director of tax and estate planning with CIBC. “You can re-contribute it starting the following calendar year, and that’s the kind of flexibility you simply don’t have with an RRSP.”
Gen Z respondents said they plan to retire at age 59, on average, while Millennials and Gen Xers are targeting 61, and boomers 63.
It makes sense for younger Canadians to contribute to their TFSAs earlier in their career when they’re in a lower tax bracket, and then use RRSP room to lower their tax bill when their income increases later in life, Golombek added. For older Canadians, the TFSA also doesn’t come with the age limit of an RRSP or minimum withdrawals of a RRIF.
“[The] TFSA is for any purpose,” Golombek explained. “You could use it to for a wedding reception, for a home renovation, for an emergency to fix a leaky roof. TFSAs are all-purpose vehicles.”
Among the 32% of Canadians who didn’t invest, 63% said they didn’t have enough income to do so and 38% feared financial loss.
Younger investors are also attracted to the first home savings account (FHSA) for its tax deductibility and flexibility. Even if account holders don’t buy a home within the qualifying period, funds can be transferred to their RRSP without impacting contribution room.
The advent of the FHSA in 2023 has changed the advice CIBC gives to prospective homebuyers, Golombek said. Advisors used to tell clients to use the RRSP home buyers’ plan, then advised them to save in the TFSA when those became available in 2009. Now, they suggest putting funds in an FHSA. “Anyone who’s saving for a first home would be crazy not to do the FHSA,” he said.
Ipsos polled 1,500 Canadian adults from Jan. 5 to 14 on CIBC’s behalf.