RRSP

[White Doors]

RRSP's are still a wise choice for the vast majority of people. The rationale is that you will withdraw them at a lesser rate than the income you made when you contributed TO them. This should be the case except for irresposible people who still have a mortgage payment at age 65. Don't blame the system, blame your own stupidity. IMO everyone should max out their RRSP allowance and only then make investments outside of RRSP's.

[watching&waiting]

I can say that RRSP's for the most part do serve a purpose of saving for retirement where taxes on money can be put off to those retirement years. Usually in your retirement your income does drop and taxes are lessened. That is where the supposed tax relief is to come from. For many that just does not fit with what they are into. If you have a 40 year work life and you saved 5% of your salary and your employers also put in the same amount, you would have roughly 4 years worth of your average salary set aside to help in your retirement. Some would even have double that as many chose to put 10% aside. Depending on the rate of return on your pension funds, this will give you a monthly figure that will be what you will get during your pension use time. Canada Pension even with subsidies is not enough to live a decent life on and for married couples it is even worse as they will get less as a couple and more as seperate people. You may see soon that divorce of the aged will come into play just to help people get a little more per month.

Most people do not start saving for retirement until they are 20 years away from that time, so you either have to up the ante or you will have even less to play with. At todays interest rates it would be hard to know exactly where things will go in future but to live reasonable off a pension you will need to have at least $500,000.00 in it, and even more as time goes on.

I plan to retire with my wife in the next 5 years and we have RSP's and other retirement plans, but the best plan I found was the fact that we bought a tree farm 25 years ago and the tress will be ready for harvest in the next decade or so. The money I take from the harvest will be taxed but it also has been offset by the many deductions we got over the years. The value for lumber of the tree farm is over 1.5 million dollars and it can be take whole por in part as we need it. To me this was a very good retirement plan and we will be able to live and travel as we see fit. The fact that this tree farm also helped remove pollution from the air for all these years is also a bonus. Maybe the government will decide to pay us to let the tress stay, or maybe not. Either way we still get our retirement the way we want it. Yes it would be good to let the trees gro another 20 years, but they are now at 55ft and are commercially viable. In 5 years they will be even more so etc. We may only take what we need each year and that way they will be worth even more later. This plan is still available to many country living people and I suggest that any young couples just starting out, that they consider this option.

I never trusted the government to look out for me and for most of my life saw the government as the enemy, when it came to saving money. Sure their are many ways to get around all the hurdles that come in life, but when I look at the Tree farm as a retirement tool, I was very glad I chose that route. I bought the tree farm when it was already 20 yeras old and the trees are now 57 years in growth. They are white pine and spruce and the value of lumber will always rise with the times, so it is self indexing. Do not let the government, or even your own employer foll you into, thinking they have your best interests in hand and they are making you ready to retire. You will find that they usually only apply numbers to things to say it meets their targets, and their targets and yours probably are very different. Think ahead and out of the box and you will be able to retire quite well.

[Saturn]

Or an overall 20% income tax that has no exceptions, deductions or other bullshit?

I was thinking more like 8 or 9 %.

That won't be enough to cover interest on the debt and OAS alone.

[Saturn]

I have just discover that I have lost virtually all my RRSP's that I worked hard to save and doing without a lot. This is how our government rewards its senior citizens.

http://www.finance.sympatico.msn.ca/rrsp/a...umentid=2703080

How am I expected to feel sorry for those rich enough to have money in the income trusts? I am furious

The GIS was meant for retired people who had very little or no income and were not in a position to save from this point on. Really, it was meant as welfare for seniors. The problem with it though is that it's been around for too long and unlike welfare it is only income-tested, not income and wealth-tested.

This means that retirees who saved very little for retirement are seeing that their income is roughly the same as retirees who didn't save at all and are now enjoying the GIS. It looks like the RRSP promoters did low-income earners a disservice by telling them to save for retirement.

This also means that making this information widely available is giving low-income earners ideas to not save at all for retirement (unless they can save a lot) because generous government benefits will be available to them when they retire. Yet another disservices for low-income earners and future retirees because as more people start taking advantage of the GIS, there will be more pressure to reduce the benefit or cancel it altogether. For those here who plan to retire 10 or more years from now, don't fall into this trap thinking that you'd be better off without retirement savings - the GIS will not be there when you retire.

[Saturn]

Aside from the CPP, there are other payments (eg. GAINS) made to retired people based on their own incomes or savings. Unless you can be certain of, say, an annual retirement income over $60,000 (I just made that number up), it makes no sense to save in RRSPs because you will just use them to make up the shortfall as other payments fall.

So you don't put any money into a tax protected account for the tax savings and retirement?

I know that if I didn't put money into an RRSP, I'd be hit for thousands this year even after trying to find every tax break I could get.

jdobbin, this is really for people who have too little income to get a significant tax break by putting money in to an RRSP. These people would be better off not saving at all because if they do their retirement incomes will be similar to the OAS/GIS benefits. This of course is only valid if you assume that the GIS will remain as it is in the future, which is a bad assumption imo. For anyone earning over $35K though, maxing out their RRSP is probably a good idea.

[jdobbin]

jdobbin, this is really for people who have too little income to get a significant tax break by putting money in to an RRSP. These people would be better off not saving at all because if they do their retirement incomes will be similar to the OAS/GIS benefits. This of course is only valid if you assume that the GIS will remain as it is in the future, which is a bad assumption imo. For anyone earning over $35K though, maxing out their RRSP is probably a good idea.

I think you're right that if you are in a low income, you probably don't need the RRSP.

This is why I've supported the income tax cut for those for low incomes. I think it is better than a GST cut or income splitting for the most part.

[Topaz]

I don't know too many people now that CAN afford to invest in RRSP's. I think the smart investment is now life insurance. Sure , you may not be around to enjoy the invest, but your family won't have to pay taxes on it, YET!! I think the income trust is going to come back and be Harper's GST and more people are going to vote against him!

[tml12]

I don't know too many people now that CAN afford to invest in RRSP's. I think the smart investment is now life insurance. Sure , you may not be around to enjoy the invest, but your family won't have to pay taxes on it, YET!! I think the income trust is going to come back and be Harper's GST and more people are going to vote against him!

I think and hope you're wrong. Harper did not make as much of a deal out of income trusts as the Liberals did with the GST. As well, the GST affects everyone who lives in Canada as well as anyone who comes here. The income trusts don't nearly have as far-reaching an effect.

[Ricki Bobbi]

I think and hope you're wrong. Harper did not make as much of a deal out of income trusts as the Liberals did with the GST.

Exactly. Besides if the Liberals campaign on reversing trusts it will become a huge story because everyone knows they can't realistically go back to the way trusts were.

That would become the issue of the campaign, plus lacking Liberal credibility.

Income trusts will stay in the spotlight for another two or three weeks then slowly fade away...

[scribblet]

That's what is puzzling me, RRSP rules have been in place for eons, and how can anyone 'lose' their RSPs. I sometimes think people don't realize that all they are doing is delaying the tax, and over the years income generally goes up not down.

This has nothing to do with RRSPs or the rules about RRSPs. Indeed, it has little to do with taxes either - despite Geoffrey's desire to cut them.

Instead, it concerns how we provide income support to pensioners (and others).

Aside f

She said she lost her RSPs, I'm assuming the loss is with GIS not the RSPs, in other words, because of receiving other income, there is no additional income from the gov't . GIS isn't much, surely you would be better off with RSPs.

To Dobbin: Yes I have RSPs but most are in spousals as I have a pension, hubby doesn't.

[jdobbin]

To Dobbin: Yes I have RSPs but most are in spousals as I have a pension, hubby doesn't.

Ah. My wife has a pension but I have my own business. Aside from CPP, I'll need a pension and I do need the tax breaks aside from business breaks.

[August1991]

She said she lost her RSPs, I'm assuming the loss is with GIS not the RSPs, in other words, because of receiving other income, there is no additional income from the gov't . GIS isn't much, surely you would be better off with RSPs.

She didn't lose her RRSPs. They were in effect "clawed" back since they meant she didn't receive other entitlements.

It is like someone on welfare who decides to go back to work and earn a salary. For every dollar in salary, the person loses a dollar in welfare. So the amount of money in the pocket is the same. (In fact, it's worse. A working person has to pay transportation, child care costs and so on.)

Like most other retirement income, your basic Old Age Security pension is taxable income. Pensioners who earn individual net income of $62,144 or more as of 2006 (including the Old Age Security pension) have to repay part of their pension benefits (see The Repayment of Old Age Security Pension Benefits (Deductions for higher-income seniors)). These repayments are normally deducted each month from your pension payment.

Link

[geoffrey]

jdobbin, this is really for people who have too little income to get a significant tax break by putting money in to an RRSP. These people would be better off not saving at all because if they do their retirement incomes will be similar to the OAS/GIS benefits. This of course is only valid if you assume that the GIS will remain as it is in the future, which is a bad assumption imo. For anyone earning over $35K though, maxing out their RRSP is probably a good idea.

Saturn has some good points here, and I agree with some basic numbers. He says that over $35k earners should load into RRSP's, I sometimes would agree.

I'm a considerably over $35k earner but I put my money mostly into non-registered funds, for now. For a couple reasons. First, I'm in my early twenties, I'm ~30 years away from my earnings prime. I'd much rather pay the taxes on my income level now than pay them at the higher bracket in my likely retirement income.

I'm also in the rather unique situation of being a middle income earning student... I have huge tax breaks because of it. I pay relatively little tax to my earnings level. So this benefits me stashing that cash outside of RRSP's since it's nearly tax free already, my effective rate last year was 18% on my net income.

My general rule when I'm talking to people about this is ages 20-30 into non-reg, 30-55 in RRSP, and whatever after into paying off bills or perhaps buying some secondary real estate which provides a nice little cash flow to retirees. Of course, some people predict having numerous kids and mat leaves in that 28-38 type range so adjustments would have to be made to such a plan.

But the basic rule of thumb (for middle + income earners) is that if your current income is below your expected retirement income, go non-registered. Otherwise, max out your RRSPs.

[margrace]

I have a question. When people are encouraged, especially by banks and financial institutions, to buy RRSP's, why are we not told that investing in them is not practical if you do not earn $30,000 a year? I never earned over $13,000 a year at any time.

[Saturn]

I have a question. When people are encouraged, especially by banks and financial institutions, to buy RRSP's, why are we not told that investing in them is not practical if you do not earn $30,000 a year? I never earned over $13,000 a year at any time.

Sales people often convince people to buy products that are useless. Do you just buy something because a salesperson tells you it's a good idea? Do salespeople normally point out the shortcomings of their products and tell you the product will not be useful to you, so don't buy it?

Let me ask you another question. Why do you imagine that the banks and financial institutions have your interests at heart instead of their own? People always have their own interests at heart first and the interests of their clients second. People who profit from RRSPs will always advise you to put your money into an RRSP. They'll even tell you to take out a loan and put it into RRSPs. That's their job, that's how they make a living. So why do you trust them that that's the best course of action for you to take? They are trying to sell you stuff. They are not independent observers who have nothing to gain. You shouldn't just blindly trust TV advertising and your financial adviser. You have to do your own research, pay attention, and understand what you are doing.

[Ricki Bobbi]

I have a question. When people are encouraged, especially by banks and financial institutions, to buy RRSP's, why are we not told that investing in them is not practical if you do not earn $30,000 a year? I never earned over $13,000 a year at any time.

Let me ask you a question. Why do you imagine that the banks and financial institutions have your interests at heart instead of their own? People always have their own interests at heart first and the interests of their clients second.

Great response Saturn. Couldn't have said it better myself.

Margrace you never earned more than $13K a year, yet were able to invest in RRSPs? Your current income now must be higher than $13K or you wouldn't have anything clawed back for cashing in RRSPs...

[Renegade]

I have just discover that I have lost virtually all my RRSP's that I worked hard to save and doing without a lot. This is how our government rewards its senior citizens.

http://www.finance.sympatico.msn.ca/rrsp/a...umentid=2703080

How am I expected to feel sorry for those rich enough to have money in the income trusts? I am furious

I'm not sure what you are furious at. Are you furious that the people of Canada pays you a GIS, because that is the primary source of your clawback. You can always refuse the GIS and seniors benefits and keep your RRSP in its entirety.

Is it unreasonable to ask that when a government provides a welfare benefit such as GIS, that when the recepient earns income, they shoudl pay back some or all of that benefit? Personally I don't think so. Yes I understand that it creates a situation, that disincents people to earn income, so I accept the argument that perhaps the clawback rate is too steep. However, when a person accepts a handout, they shoud realize that that handout is at the discretion of the payor and the rules can change at any time.

BTW, there is an easy way out of your situation. Simply cash out your RRSP. Sure, you will take a one-time tax and claw-back hit in the year you cash out, but all subsequent years you will no longer be impacted by RRSP income.

[August1991]

Why do you imagine that the banks and financial institutions have your interests at heart instead of their own? People always have their own interests at heart first and the interests of their clients second.

Wait a second here. If I go to a dentist or a doctor, how can I judge what is necessary? I'd need to go to dentistry school to be able to judge whether the advice is right or not. IOW, at some point, you have to trust the advice fo professionals.

But more important, your argument suggests that Margrace' situation is the fault of banks. It's not. The real problem lies in the incoherent, complex patchwork nature of Canada's personal tax and subsidy system. What originally was designed to help ordinary people has led to pernicious incentives with costs to society at large.

Margrace should be able to save even a small amount for her retirement and see a net benefit. That's good for her and good for Canada. Because of our fiscal regime, she can't. That's a pure loss for everyone.

The bank is not to blame. I blame our politicians and bureaucrats.

[Ricki Bobbi]

Wait a second here. If I go to a dentist or a doctor, how can I judge what is necessary? I'd need to go to dentistry school to be able to judge whether the advice is right or not. IOW, at some point, you have to trust the advice fo professionals.

Such a faulty analogy. You have to go to school for at least 6 years to become a dentist or doctor.

You could take an hour long course on investing basics at your local community centre (maybe the public library?) to avoid the basic, basic mistake margrace made.

[margrace]

I have a question. When people are encouraged, especially by banks and financial institutions, to buy RRSP's, why are we not told that investing in them is not practical if you do not earn $30,000 a year? I never earned over $13,000 a year at any time.

Let me ask you a question. Why do you imagine that the banks and financial institutions have your interests at heart instead of their own? People always have their own interests at heart first and the interests of their clients second.

Great response Saturn. Couldn't have said it better myself.

Margrace you never earned more than $13K a year, yet were able to invest in RRSPs? Your current income now must be higher than $13K or you wouldn't have anything clawed back for cashing in RRSPs...

My income right now is $12,890. If you cash in RRSs the goverment takes half of it off the top and takes the rest of you extended pension. I have protested to Mr. Clement and my protest has beens send on by his office I am told.

[Technocrat]

Here is an idea... its not particularly amazing but here it is. Start saving when your young and just set it up so you contribute to your retirement automatically. It takes all of 10 min to walk into your bank and presto you don't even have to think about it. Hell I even set mine up with my bank online.

I have only been working full time for just under 2 years(Im 25). Amount saved for retirement already.. just under 5 grand. (My portfolio grew by 14% as well... thanks to some smart investing). I know I could have probably saved a bit on tax by not contributing so much so early (I still have a tonne of deductions from university to use up) but I figured if i set everything up early I won't find myself in such a rediculous bind that many people are in when they realize HOLY CRAP IM 40 and havn't saved a penny.

I Portion off a small part of my income (frankly i never see it except when i get my rrsp info quarterly) so its not like I really feel it.

[Charles Anthony]

You could take an hour long course on investing basics at your local community centre (maybe the public library?) to avoid the basic, basic mistake margrace made.

Fine. That would still be both a waste of resources AND an injustice. If the Taxman forces us to do is own work, at the very least he can make it easier for everybody to calculate how much taxes we must lose. If you have to study 1 second or hire a financial advisor JUST TO SAVE INCOME TAXES that is ridiculous and unfair. It would be different if MarGrace was planning some speculative investment business venture. She is just trying to save money.

Years ago, I was told by a banker that if I bought these RRSPs, I would end up with a refund that year. So, I bought them. Lo and behold! I got no refund that year! This banker did not look at my entire portfolio. In retrospect, maybe I should have taken that bank to small claims court...

In the long run, the free-wheeling RRSP-peddlers are going to gradually see their customer base erode. Unfortunately, it will be at the expense of the wee-folk who get duped along the way.

[Keepitsimple]

The whole idea of RRSP's is to start saving when you are young and have the advantage of "time" work for you. If you're just getting into the workforce at age 20 and you can find a way of putting $500 per year in an RRSP, it would well be worth it on two fronts. First, because you are young, you can be a little more of a risk taker. Investing in a solid diversified mutual fund will over time, return you an average of 10-12% per year - there are plenty of them out there. There will be good years and there will be not-so-good ones but over time, it evens out. Even at 10% average return, your money doubles over 7 years so that $500 is worth $16,000 after 35 years (Age 55). If you can put $500 only until you are 30 years old and then do nothing until you're 65 you'll have accumulated a nest egg of about $250,000 and you will have only invested for 10 years! If you can find a way to sock away $1000 a year, you'll have $500,000.....and don't forget you'll get a tax refund to help you out. That is the beauty of starting young and letting time accumulate your fortune. It can be done.

1) Start young

2) Pick an established Mutual Fund.

3) Let time work for you (the doubling factor - 500 x2 =1000. 1000 x2 = 2000. 2000 x2 = 4000x2=8000x2=16,000)

The later you start - the less the "doubling factor comes into play. And don't panic when the stock market takes a hit as it always does eventually. Time is on your side and it always recovers.

[White Doors]

Good logical thinking technicrat. Unfortuantely there are a plethora of people too dumb and shortsighted to do so. That's why we all pay taxes I guess

[White Doors]

The later you start - the less the "dubling factor comes into play. And don't panic when the stock market takes a hit as it always does eventually. Time is on your side and it always recovers.

Agreed. I always think of those times as stocks being on 'clearance'

Like a boxing day sale!