Common Pitfalls

I keep trying to write a post about sequence of returns risk (SoRR) and why I believe dynamic withdrawal strategies are the optimal solution for retirees. But they get too technical too quickly, and the last thing I want to do is write something that reads like an Excel spreadsheet. I hope to get something out later this week or early next week.

To get over this writer’s block and stick to the plan of posting once a week, here’s something simpler. I hate that I’m doing a ‘list’ blog post, but here are the most common financial pitfalls I see Canadian investors make.

These are in no order.

Not enrolling in your employer’s group retirement plan.

If your employer will match your contributions (to a maximum), and you’re not in the plan, you’re flushing money down the toilet. And even without matching, payroll deductions make saving automatic. This is powerful.

Paying 20 percent on credit card debt while your savings earns 1 percent or your line of credit that charges 10 percent sits unused.

No investment beats paying off high-interest debt. If you’ve got savings or a lower-rate line of credit, use them to wipe out the credit card. This helps with interest costs and cash flow flexibility.

I know some will say, “but if I do that, I’ll then use my credit card again and be back where I started.” That’s a whole other problem. And if you’re in the situation, cancel your credit card, or lower your limit substantially.

Not ‘topping up to tax bracket’ when retirement income is well below the OAS clawback level.

Withdrawing a bit more from your RIF/LIF, or converting RRSPs earlier, can reduce future taxes and might even simplify your estate. Just be mindful of the OAS clawback.

Ideally, you can roll these proceeds into a TFSA. If your TFSA is maxed out, then a non-registered will do.

Making RRSP contributions early in your career before maximizing TFSA or FHSA contributions.

If you’re in a low tax bracket, the RRSP refund doesn’t do much. A TFSA or FHSA usually offers more flexibility, better long-term outcomes, and no tax bill later.

And remember you don’t need to claim your RSP deductions.

Confusing asset location and optimal investment management.

Make sure your investments are well-structured before you start moving them around for tax efficiency. In Canada, and in most cases, asset location isn’t as big a deal as it’s made out to be. Details here courtesy Ben Felix.

Letting the tax tail wag the investment dog.

Chasing tax savings without regard for return, liquidity, or suitability usually ends in regret. A great tax strategy won’t fix a bad investment. Do me a favour and look up “WOF investments for tax benefits in BC.” Then look at the performance of those WOF investments.

Ignoring the tax savings of RRSP contributions, especially at higher incomes.

RRSPs don’t just give you a refund. They let you move income from a high bracket today to a (hopefully) lower one in retirement. That bracket gap is valuable but so is the refund.

If you’re in the highest marginal tax rate, and put $10,000 into your RSP, you’re saving $5,350 in taxes (in BC, in 2025). That $5,350 can be used to fund your TFSA, RESP, or pay down your mortgage.

Investing too conservatively inside your TFSA.

Odds are, your TFSA will be the last account you touch in retirement. Take advantage of tax-free compound growth. Always invest within your risk tolerance, but the TFSA should be called the TFIA.

Letting headlines, emotion, or your neighbor’s hot tip guide your decisions. Behavioral biases are everywhere.

Don’t react. Accept that volatility is the price of admission. Try not to ever sell until you’re retired.

Treating general advice like it’s meant for you. It’s not.

Good advice without context can still be bad advice. Your plan, your goals, and your circumstances matter more than any rule of thumb.

Here are some of my favourites: “everyone should take CPP at 60, everyone should take CPP at 70, every senior should defer their property taxes, Canadian banks are the best and only investments that make sense for everyone, this time is different, no one should contribute to RSPs ever, the list goes one.

Whole Life Insurance is only appropriate in very specific circumstances.

Treat insurance like insurance, not like an investment.

That was a lot easier to write than a post about SoRR and dynamic withdrawal strategies. Thanks for reading. If you spot yourself or someone you care about falling into any of the above, have them give me a shout.