Monday, December 30, 2013

Your Unused TFSA and RRSP Contribution Room is Shrinking!

Just in case you need a reason to save more of your hard-earned money instead of buying yet another electronic gadget or pair of shoes, here’s a good one: the TFSA and RRSP contribution room you didn’t use in past years has been shrinking.

Perhaps when you decided you didn’t have enough money to save any in a tax shelter last year you felt safe knowing that you’d be able to use the room in the future. Some magical time will come when you can save enough money to use up past room. But the trouble is that your available room has a leak.

Dollars this year are worth less than dollars last year, and those dollars are worth less than they were the year before. So, let’s stop talking about dollars and start talking about loaves of bread (as a proxy for the cost of living).

Suppose that your $5000 TFSA allotment from 2009 amounted to 2500 loaves of bread. The Consumer Price Index (CPI) in Canada has gone from 113 to 123 since the start of 2009. If you haven’t used this 2009 TFSA room yet, then it is only 2297 loaves of bread now. You’ve lost 203 loaves of TFSA room.

Even though it’s not obvious, contribution room in both TFSAs and RRSPs have a slow leak. If inflation rises in the future, this leak gets bigger. Genuine hardship is a good reason to put off saving, but eating out and buying junk are poor reasons that are costing you money in more ways than one.


  1. There's something very unsettling about this post.I'm going to go bake some bread now and try not to think about the future when I might be too needy to be kneady....

    1. @Bet Crooks: If I had to bake my own bread, I'd have valued a loaf at $50 instead of only $2.