I’ve been toying with a savings concept that I’m tentatively calling the TFSA snowball. It’s a play on Dave Ramsay’s “debt snowball” method (his one positive contribution to society) where borrowers pay off their smallest loan balance first, then roll those freed-up payments into the next smallest balance. Rinse and repeat until debt free.

Related: I prefer the debt avalanche where you tackle the highest interest rate balance first.

While it’s rare for my clients to be that heavily indebted, many of them are striving to catch-up on unused TFSA contribution room. After all, money is finite and we can’t do everything all at once. Heck, my wife and I are on our third game of playing TFSA catch-up in the last 15 years!

Indeed, you might have a period of income interruption from a parental leave or career change. Maybe you financed a vehicle and had to temporarily pause TFSA contributions. Perhaps you just had other spending or saving priorities and the TFSA got neglected.

Whatever the case, the TFSA snowball concept is meant to treat your unused contribution room like a five-alarm emergency. That’s right, you’ll aggressively attack these contributions as if you were paying off high interest credit card debt. Within reason, you’re going to throw everything you have at your TFSA until you’ve caught up on all of that unused contribution room.

What’s the payoff? Well, it’s a similar feeling to paying off your consumer debt. All of the money you were allocating towards debt repayment can now be redirected towards savings goals. Same with the TFSA.

Once your TFSA is fully maxed out, you can only contribute the annual limit afterwards – which will feel like a modest amount compared to your previously aggressive contributions.

The extra cash flow is now freed-up to fund other goals, like a new car, dream vacation, extra mortgage payments, lifestyle creep, non-registered investments, etc. The choice is yours!

*this chart presumes the annual TFSA limit increases by $500 in 2026 (to $7,500) and then again in 2029 (to $8,000)

The table above is our own TFSA snowball plan. Aggressive contributions of $28,000 per year (each) for the next three years, followed by a $13,000 contribution (each) in 2028 to fully max our TFSAs.

The payoff after three-and-a-half more years of TFSA catch-up is that we’d only have to contribute the annual limit from 2029 onwards and can redirect those extra catch-up contributions towards other goals.

Right now that’s loosely earmarked for the mortgage – extra lump sum payments to pay off the balance earlier. But the timing also coincides with our kids entering post-secondary years (yikes!) and so we might not want to commit all of those funds until we know exactly where the kids are going and what their funding requirements will be.

We could also simply pay ourselves less, since we topped-up our personal income to do the TFSA snowball in the first place.

Or, without the pressure to save more, we could decide to work a bit less and intentionally earn less income. Like a Coast Fire plan.

There’s also a vehicle purchase to consider – or some modest home renovations.

Who am I kidding? The funds will probably go towards enhancing our travel budget!

In summary, like an aggressive debt repayment plan, a conscious effort to catch-up on unused TFSA contribution room for a few years can dramatically improve your financial picture and give you a host of options to consider afterward.

What are your thoughts on treating your unused TFSA room like a five-alarm emergency? Let me know in the comments.

This Week’s Recap:

I’ve updated my annual reminder on how to crush your RRSP contributions next year by using the T1213 form to reduce withholding taxes at the source. This is a secret weapon for many of my higher-earning clients who contribute significantly to their RRSP each year. Why not get your tax refund upfront on every paycheque instead of waiting until you file your taxes?

Last week I wrote about lifestyle creep not necessarily being a bad thing.

We’re off to our favourite city in the world – Edinburgh – next week for a 10-day holiday. It’ll be our fourth time back to “the most beautiful of all the capitals of Europe.” We can’t wait!

“This is a city of shifting light, of changing skies, of sudden vistas. A city so beautiful it breaks the heart again and again.” – Alexander McCall Smith

Weekend Reading:

If you’re still working and contributing to CPP, or if you’re retired and still waiting to take CPP, your expected CPP benefits increase based on wage inflation. But if you’re already receiving CPP benefits, your annual increase is based on price inflation.

Typically, wage inflation is about 1% higher than price inflation. But that was not the case in 2022 when prices rose faster than wages. That year, Fred Vettese pointed out, was an anomaly where you would have been better off taking CPP in December instead of January so you’d benefit from the price inflation bump instead of the wage inflation bump.

Complicated stuff, right? So what about this year? Fred Vettese is back to answer that question now that the data is out. 

Of Dollars and Data blogger Nick Maggiulli is doing the lord’s work busting the persistent myth that Vanguard, BlackRock, and State Street are a secret cabal that control the world.

Here’s what football (soccer) fans can teach investors:

“One of the biggest behavioural challenges fans and investors face is the tendency to overreact. Fans often make snap judgments, calling for managerial changes or criticising players after just one bad game. Investors, too, can fall into the trap of panic-selling during a market downturn or impulsively chasing after the latest “hot” stock, fund or theme.”

How do people react to financial advice? It depends on who is receiving it, who is giving it, and what it consists of.

Money Architect’s Russell Sawatsky tackles a thorny issue for DIY investors – at what age do you hand over the reigns?

Will buying a home make you happier? The evidence is mixed, at best:

A Wealth of Common Sense blogger Ben Carlson answers a reader question about whether they need five years of cash reserves in retirement.

Here’s Carlson again discussing the perils of planning for early retirement:

“Your two best forms of risk management in retirement are diversification and flexibility with your plan. Every strategy comes with trade-offs. Unfortunately, there is no investment panacea that offers 100% certainty during retirement.”

Finally, here’s Jason Heath with the ins and outs of consolidating your registered accounts for retirement income.

Happy Thanksgiving, and have a great weekend!

*Updated for October 2024*

Many high income earners struggle to max out their RRSP deduction limit each year and as a result have loads of unused RRSP contribution room from prior years. While we can debate about whether it’s appropriate for middle and low income earners to contribute to an RRSP or a TFSA, the reality for high earning T4 employees is that an RRSP contribution is the best way to reduce their tax burden each year.

The RRSP deduction limit is 18% of your earned income from the prior year, up to a maximum of $32,490 for the 2025 tax year, plus any unused RRSP room from previous years.

An employee who earns $125,000 per year can contribute $22,500 annually to their RRSP. While that’s straightforward enough, coming up with $1,875 per month to max out your RRSP can be a challenge. An even greater challenge is catching up on unused RRSP room from prior years. 

Related: So you’ve made your RRSP contribution. Now what?

Let’s say you live in Ontario, earn a salary of $125,000 per year, and you want to start catching up on your unused RRSP contribution room. Your gross salary is $10,416.67 per month and you have $2,627.08 deducted from your paycheque each month for taxes, leaving you with $7,789.59 in net after-tax monthly income.

Your goal is to contribute $2,000 per month to your RRSP, or $24,000 for the year. This maxes out your annual RRSP deduction limit ($22,500), plus catches up on $1,500 of your unused RRSP contribution room from prior years. Stick to that schedule and you’ll slowly whittle away at that unused contribution room until you’ve fully maxed out your RRSP. Easy, right?

Unfortunately, you don’t have $2,000 per month in extra cash flow to contribute to your RRSP. After housing, transportation, and daily living expenses you only have about $1,200 per month available to save for retirement.

No problem.

That’s right, no problem. Here’s what you can do:

T1213 – Request To Reduce Tax Deductions at Source

Simply fill out a T1213 form (Request to Reduce Tax Deductions at Source) and indicate how much you plan to contribute to your RRSP next year. Submit it to the CRA along with proof –  such as a print out showing confirmation of your automatic monthly deposits. The CRA will assess the form and send you back a letter to submit to your human resources / payroll department explaining how they should calculate the amount of tax they withhold for the year.

New: You can now submit the T1213 form online by scanning your form and supporting documents and sending them through the “Submit document online” service in your CRA My Account.

Note that you’ll need to fill out and submit the form every year. It’s best to do so now (mid October, early November) for the next calendar year so you have time for the form to be assessed and then you can begin the new year with the correct (and reduced) taxes withheld.

That said, the CRA will approve letters sent throughout the year – it just makes more sense to line this up with the start of the next calendar year.

Reducing taxes withheld from your paycheque frees up more cash flow to make your RRSP contributions. It’s like getting your tax refund ahead of time instead of waiting until after you file. Let’s see how that would work using our example from Ontario.

You’ve signalled to CRA that you plan to contribute $24,000 to your RRSP next year. In CRA’s eyes, that brings your taxable income down from $125,000 to $101,000. This will make a significant difference to your monthly cash flow.

Recall that you previously had $2,627.08 in taxes deducted from your monthly paycheque. After your T1213 form was assessed and approved, the taxes withheld from your paycheque each month goes down to $1,831.08 – freeing up an extra $796 in monthly cash flow that was previously being withheld for taxes. That’s an extra ~$9,552 that you can use to crush your RRSP contributions next year.

Now, to be clear, you need to follow through and make the $24,000 RRSP contributions that you promised to CRA. Otherwise you’ll face a bigger tax bill for the next tax year, and risk not getting the T1213 form approved again.

Once your T1213 form has been assessed and approved you’ll receive a letter that looks something like this to give to your employer:

The biggest advantage to reducing your taxes withheld at the source is to increase your cash flow so you can make those big RRSP contributions. Otherwise, your options are to take out an RRSP loan to help reach or exceed your deduction limit, or wait for your tax refund and then contribute that lump sum along with your smaller monthly contributions.

**Optimize Your RRSP**

I have a general savings philosophy that goes something like this:

1. Utilize employer matching savings plan – basically take advantage of your employer match, it’s free money!
2. Optimize your RRSP contributions – contribute enough to bring your taxable income down to the bottom of your highest marginal tax rate
3. Maximize TFSA – max out your TFSA, eventually.
4. Prioritize short-term goals – once the first three goals have been funded, extra cash flow should be allocated to short-term goals such as buying a new vehicle, taking a dream vacation, renovating your home, funding a parental leave or early retirement, etc.

On the RRSP front, I use EY’s excellent tax calculators & rates page (updated annually) and the Canadian personal tax rates by province sections to determine what those marginal tax brackets are for my clients.

What does optimizing mean? For instance, in the example we’ve been using above (Ontario worker with $125,000 gross income) it might make sense to only contribute $13,266 to their RRSP to bring their taxable income down to $111,734 – the bottom of the 43.41% marginal tax bracket).

That way, every single dollar contributed to the RRSP is going to save 43.41 cents in taxes.

Contribute one more dollar, and that dollar will only receive 37.91 cents in tax relief.

Of course, it might be perfectly sensible to contribute more and get a blended tax deduction (some at 43.41% and some at 37.91%). Maybe you’d want to bring down your income to the bottom of the 37.91% marginal tax bracket, but no further. 

Final Thoughts

Back to our Ontario example, let’s say you did not fill out the T1213 form and instead just contributed your available cash flow of $1,200 per month or $14,400 per year. That would reduce your taxable income to $110,600 and give you a tax refund of $6,189. 

You could do anything with that tax refund, and a lot of surveys suggest Canadians are more inclined to spend their refunds because they’re seen as windfalls. 

Meanwhile, had you simply filled out the T1213 form and then contributed $2,000 per month to your RRSP, you’d have reduced your tax bill by $9,552 and have nearly $10,000 more saved inside your RRSP.

Who’s crushing it, now?

I swear half my job is to convince my frugal clients to spend a bit more money. I’m not talking about making a complete 180 degree turn to become a different person. But if you’ve always stayed at a Best Western, then an upgrade to the Ritz every once in a while won’t kill you. Heck, you might even enjoy it!

Part of this push to spend more comes from my work with hundreds of retirees who don’t (or cannot bring themselves to) spend up to their capacity. After years of frugal living, never exercising those spending muscles, it’s next to impossible to turn off the savings taps and turn on the spending taps in retirement.

Seeing this firsthand caused me to reevaluate my own priorities. I always prided myself on a high savings rate without necessarily looking down the road at what I was saving for. How much money was enough? As John D. Rockefeller famously quipped, “just a little bit more.”

We’re also fortunate as business owners to get to decide (for the most part) how much we pay ourselves. It’s common advice for business owners to shelter as much income inside their corporation as possible and pay themselves just enough to pay their personal expenses. 

That’s pretty much what we were doing until 2022, when we decided to make a big change and upgrade our house. Our larger mortgage payments, increased desire to travel, and our growing children meant life was more expensive on the personal side of our ledger.

We needed to give ourselves a raise, and so that’s exactly what we did last year and again this year.

We also needed a system to strike the right balance between enjoying life today and having a comfortable retirement.

Very loosely, we’re saving about 20% of our personal income (TFSAs and RESP), setting aside 20% for taxes (paid in quarterly instalments), spending 20% on total housing costs, 20% on daily living (groceries, transportation, health, kids’ activities, etc.), and 20% on travel and guilt free spending.

Yes, the 20-20-20-20-20 budget. I should patent that!

In the past, it was tempting to limit some of the spending categories by either allocating more to personal savings, or by simply paying ourselves less and leaving more in the corporation to invest. In fact, it was typical for us to invest 25% of our business income.

The problem was that trajectory was reducing our standard of living today while kicking a big ol’ tax can down the road in retirement when income sources like corporate dividends, RRIF and LIF withdrawals, and CPP and OAS collided.

And, as I’ve learned, if I didn’t start exercising those spending muscles a bit now there’s a good chance I couldn’t bring myself to live it up in retirement. 

I decided it would be better to introduce some lifestyle creep now to make sure we could maximize our life enjoyment today, tomorrow, and throughout retirement.

So, we’re paying ourselves more while still investing 15% of our business income. That allows us to meet our desired spending needs on the personal side while also investing 20% of our personal income to catch-up on our TFSA contributions.

It’s a nice balance, and it’s freeing to know that we can enjoy life to the fullest today and still have a secure retirement.

Don’t get me wrong, I’m still a saver at heart. But tomorrow is never promised. My wife has MS. Our kids are getting older. If we have the chance, we’re going to take the trip, attend the concert, eat at the restaurant, splurge on the nice Airbnb, and still try to max out our TFSAs.

The trade-off? We might take 15 years to pay off our mortgage instead of 10. We’ll have a smaller corporate investing account balance and may have to work part-time as a way to ease into retirement. That’s okay, I might have done that anyway!

Perhaps no book has influenced people’s behaviour when it comes to money and lifestyle creep more than Bill Perkins’ Die With Zero. 

And while I’d take the advice of a multi-multi-millionaire energy trader with a grain of salt, the concepts of building memory dividends and maximizing life enjoyment will truly cause you to reflect on what really matters, and whether it’s about enjoying life or watching numbers go up on a spreadsheet.

To summarize, we’ve had some intentional lifestyle creep over the past two years and I don’t regret it one bit. We’re still saving appropriately for retirement with a good system in place – and this trajectory strikes a better balance between living for today and saving for the future.

Promo of the Week:

There are still a few days left to take advantage of Wealthsimple’s 1% transfer bonus. I’ve spoken with several readers and clients who have already taken advantage. One deposited $500,000 from the sale of a rental property and secured a $5,000 cash back bonus. Another transferred $2M(!) from Questrade to secure a $20,000 cash back bonus.

Note that the bonus is paid into a Wealthsimple Cash account (their high interest savings account) in 12 monthly instalments to encourage you to keep your funds at Wealthsimple. Still, it’s an incredibly lucrative offer if you’re in the mood to move your savings and/or investments.

Open your Wealthsimple account today, and download the mobile app. Login and in the upper righthand corner you’ll see a picture of a present. Click on that and you can enter my referral code: FWWPDW to tell them Robb sent you and we’ll each get another $25.

Then, register before October 1st and you’ll have 30 days to transfer or deposit a minimum of $15,000 to get a 1% cash back matching bonus.

It’s that easy!

Weekend Reading:

Short and sweet this week.

A Wealth of Common Sense blogger Ben Carlson compares this bull market run against the epic bull market of the 80s and 90s. Pretty close!

Here’s how to move Locked-In Retirement Account (LIRA) funds to another institution without tax consequences.

Mark Walhout answers the top 10 probate and estate planning questions in Canada:

Here’s a surprising fact. The most common outcome from buying a stock is that you lose all your money:

“The stock market is NOT a rising tide lifts all ships story. It is a haystack with unknown, but required, needles story. So buy the damn haystack.”

How will Canada’s new mortgage rules affect your plans to buy a home? Erica Alini and Rachelle Younglai answer your questions.

In many ways, index funds have effectively “solved” investing. Yet many people continue to delegate their investment management and financial decision-making to financial advisors. PWL Capital’s Ben Felix answers the question of why you’d hire a financial advisor:

You might be surprised to hear that if something happened to me, my wife has been instructed to hand everything over to PWL Capital. That’s how much I believe in the good work that group is doing.

Finally, Shawna Ripari couldn’t resist a spending spree, so she tried a no-buy challenge. Here’s what she learned.

Have a great weekend, everyone!