RRSP Risks for Late-Career Savers: What to Watch

As you approach retirement, deciding whether to continue contributing to your registered retirement savings plan (RRSP) becomes more consequential. While RRSPs are powerful tax-deferred tools for most of your working life, they aren’t automatically the best choice for every late-career situation. Understanding when contributions help — and when they may hurt — can protect your long-term financial security.

When you should keep contributing to your RRSP

If your employer offers a group RRSP with matching contributions, continuing to contribute is almost always worthwhile. Employer matches—often 25%, 50% or even 100% up to a set limit—represent immediate, risk-free returns on your savings. The same logic applies to defined contribution (DC) pension plans, where employer contributions significantly increase the value of participating.

Continuing RRSP contributions also makes sense if you have limited retirement savings or expect modest pension income. Most people are in a lower tax bracket in retirement than during peak earning years, so contributing now and withdrawing at a lower rate later typically reduces lifetime taxes.

High-income earners who are in the top provincial tax brackets can particularly benefit from RRSP deductions today. The immediate tax relief and the potential to be taxed at a lower rate in retirement make RRSP contributions an effective wealth-building strategy for many.

If you plan to retire abroad, late-career RRSP contributions are frequently advantageous. Non-resident withdrawals from RRSPs and registered retirement income funds (RRIFs) are usually subject to Canadian withholding tax—commonly 15% to 25%—and many countries either tax foreign retirement income at lower rates or credit Canadian withholding tax against local tax owed. In some jurisdictions, foreign retirement income isn’t taxed at all, making the Canadian withholding tax the main tax consideration.

When you should not contribute to your RRSP

There are circumstances where further RRSP contributions could leave you worse off. One common scenario is when a lower-earning spouse will receive large pension or RRSP/RRIF income in retirement. Thanks to pension income-splitting, many pension streams (including RRIF withdrawals after age 65) can be split up to 50% with a spouse. That can shift taxable income onto the lower-income partner and push them into a higher tax bracket in retirement. In such cases, it may be better to prioritize a tax-free savings account (TFSA) if you have contribution room, or to save in a non-registered account.

Someone moving into part-time work while transitioning to retirement may also find their effective tax rate increases later, making RRSP contributions less attractive.

Consider the impact of Old Age Security (OAS) clawback if you expect retirement income in the $100,000–$150,000 range. The OAS recovery tax effectively raises the marginal tax on RRSP/RRIF withdrawals for those affected, so those planning near that income band should factor the clawback into their tax projections.

Means-tested benefits like the Guaranteed Income Supplement (GIS) are sensitive to income. RRSP or RRIF withdrawals that increase assessable income can reduce or eliminate GIS entitlements. For people whose retirement income will consist primarily of CPP and OAS, a TFSA is often a better shelter than an RRSP because TFSA withdrawals do not affect eligibility for income-tested benefits.

High-interest debt is another valid reason to pause RRSP contributions. Paying down credit card balances or other expensive borrowing frequently yields a guaranteed return equal to the interest rate paid, which can outweigh the tax benefits of new RRSP contributions.

Should most people contribute to RRSPs?

For most working Canadians, RRSP contributions remain a sound strategy because they typically lower taxes now and allow withdrawals at a lower tax rate in retirement. If your TFSA is already maximized and you’re deciding between contributing to an RRSP or saving in a non-registered account, RRSP contributions often still make sense—even if your retirement tax rate is similar to today.

There is also a behavioral advantage to using less accessible accounts like RRSPs. Funds inside an RRSP are less likely to be spent on discretionary purchases compared with money in a TFSA or regular savings account, which can help preserve retirement capital.

Employer matching on retirement accounts is a compelling reason to contribute regardless of tax-rate differences between now and retirement. Free employer contributions are immediate gains that are hard to beat with other financial choices.

Finally, a qualified financial planner can run personalized projections that account for your expected income, taxes, and savings needs. Using financial planning software, a planner can model the long-term effects of RRSP contributions versus other options to determine what best supports your retirement goals and legacy plans.

Read more about planning for retirement:

• CPP payment dates in 2025, and more to know about the Canada Pension Plan
• Why retirement planners are getting defensive
• Retirement taxes explained: Withholding, clawbacks, and other surprises
• How to plan for old age when you don’t have kids