Author Topic: Spousal RRSP allocation  (Read 1120 times)

Kambo

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Spousal RRSP allocation
« on: December 12, 2016, 11:40:02 AM »
Hello,
I've looked around the forum to find an answer to my query but I didn't find anything. If this has been discussed elsewhere please let me know.

My question is about Spousal RRSP's and more specifically what kind of allocation would be a good fit.

We are a single income household, I am the bread winner making roughly 165k pre-tax and have a DB pension with a crown corp. My partner is Stay At Home Mom raising our two daughters.

I am setting up a Spousal RRSP and I am trying to decide on a the proper mix of funds.

I know that having a DB pension can reduce the need for bonds on MY part but would it be wise to allocate some bonds into the Spousal RRSP?

Thanks for any thoughts / ideas!

Sam



 

TrMama

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Re: Spousal RRSP allocation
« Reply #1 on: December 12, 2016, 12:59:02 PM »
Hello,
I've looked around the forum to find an answer to my query but I didn't find anything. If this has been discussed elsewhere please let me know.

My question is about Spousal RRSP's and more specifically what kind of allocation would be a good fit.

We are a single income household, I am the bread winner making roughly 165k pre-tax and have a DB pension with a crown corp. My partner is Stay At Home Mom raising our two daughters.

I am setting up a Spousal RRSP and I am trying to decide on a the proper mix of funds.

I know that having a DB pension can reduce the need for bonds on MY part but would it be wise to allocate some bonds into the Spousal RRSP?

Thanks for any thoughts / ideas!

Sam

Between my DH and I we have an impressive number of accounts, RSP x2, spousal RSP, TFSA x2, DB pension, DC RSP and taxable investment account. I use a spreadsheet to keep track of allocation across all the accounts. No single account has anything even approaching a rational AA, however when you look at the entire portfolio the AA matches our investment plan. We did it this way to minimize tax liability now and after we croak.

We haven't taken the DB pension into account when setting up the AA of the other accounts. I've never heard of this personally. We just picked the bond/equities ratio we were comfortable with and went from there.

Heckler

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Re: Spousal RRSP allocation
« Reply #2 on: December 12, 2016, 01:41:07 PM »
« Last Edit: December 12, 2016, 01:43:00 PM by Heckler »

Kambo

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Re: Spousal RRSP allocation
« Reply #3 on: December 12, 2016, 01:55:05 PM »
Thanks TrMama!, Thanks Heckler!

During my research I've seen some people treat a DB pension as bond-like in and of itself and therefore lessen or eliminate bond allocations in their AA. I guess I'm trying to decide if bonds have merit in the Spousal RRSP or not because we have the 'Guarantee' ;) of the DB. As we are starting out in our mid/late thirties it would be nice to put more towards equities for increased upside potential.

Thanks for the links and input,

Sam

RichMoose

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Re: Spousal RRSP allocation
« Reply #4 on: December 12, 2016, 03:38:04 PM »
Thanks TrMama!, Thanks Heckler!

During my research I've seen some people treat a DB pension as bond-like in and of itself and therefore lessen or eliminate bond allocations in their AA. I guess I'm trying to decide if bonds have merit in the Spousal RRSP or not because we have the 'Guarantee' ;) of the DB. As we are starting out in our mid/late thirties it would be nice to put more towards equities for increased upside potential.

Thanks for the links and input,

Sam

The use of bonds is mostly a psychological decision. Will you stick to your investment plan during a market crash, or will you make a really bad investment decision (selling your stocks when they are cheapest) because you can't stomach seeing your savings collapse 50%?

Bonds reduce volatility, but we know that they also tend to underperform over time when compared to stocks. The higher the allocation to bonds the lower your overall return, but it reduces the psychological impact of seeing a potential 50% portfolio drop during a stock market crash. Just a 20% allocation to bonds can reduce volatility quite a bit.

I personally don't hold any bonds because I believe that even in the worst case stock scenario I will stay 100% invested according to my plan. I also have a government DB pension so my thinking is I can rely on a nice safety cushion which will help me stay psychologically committed to my plan.

I believe another factor is your savings rate. If one saves a good chunk of money every month, a crash might not do as much psychological damage because you will see the weighted average cost of stocks go down with every purchase which can be psychologically satisfying. However, once you're retired and not saving anymore it can really stress you out to see your lifetime savings seemingly disappear month after month.

TrMama

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Re: Spousal RRSP allocation
« Reply #5 on: December 12, 2016, 04:27:27 PM »
Thanks TrMama!, Thanks Heckler!

During my research I've seen some people treat a DB pension as bond-like in and of itself and therefore lessen or eliminate bond allocations in their AA. I guess I'm trying to decide if bonds have merit in the Spousal RRSP or not because we have the 'Guarantee' ;) of the DB. As we are starting out in our mid/late thirties it would be nice to put more towards equities for increased upside potential.

Thanks for the links and input,

Sam

We treat the DB pension as a separate entity from the stache. When I'm calculating my FIRE number I just subtract the annual pension payout. So if we decide we want to live on $40K/yr and the pension pays $20K/yr (indexed) then I only have to generate $20K from my stache. That means my stache only needs to be $500K; whereas someone without a DB pension would need to have a $1M stache in order to generate the same annual income.

I treat rental income the same way. If we can net $10,000/yr for our suite, then I can reduce my FIRE number by $250K.