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Can you simplify RRSP, OAS, and Pension rules please?
March 2, 2021
11:24 pm
Forum Posts: 9279
Member Since:
October 21, 2013
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Inflation and taxes can be overrated as problems. A lot of fear has been instilled by financial columnists who, over the years, repeatedly made calculations based on marginal income, and, in particular an income that would attract a marginal tax rate around 50%.

Before you decide, figure out how much it is really costing you.

Use your average tax rate to make this calculation (taxes actually paid divided by total income times 100). Current inflation is 1%.

I calculate that, with 1% inflation, one has to have an average tax rate of 33%+ in order to take a loss on even a one year GIC paying 1.50%.

If you do have an average tax rate of over 33%, then I would say you would likely benefit from talking to a financial planner, you might consider making more generous charitable donations to reduce tax, or you have so much money that the decision about GICs vs ETFs doesn't really matter much and it is simply a personal preference.

Inflation might go up; ETF returns might go down. Inflation might go down; ETF returns might go up. Who knows?

March 3, 2021
10:35 pm
Forum Posts: 6823
Member Since:
April 6, 2013
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Bobbyjet11 said

Are you insinuating that a GIC at 1.3 - 1.8% is a better alternative to most low-risk ETF's in general?
I guess my biggest concern is a looming major market correction and/or a recession (though most analysts seem to think that the bull market has quite a bit of life left in it. I'm not as sure.)
I am sure however that in these low-interest times that many retirees have the same dilemma.... and are looking for the best solution.

That 1.3% to 1.8% per year will look very good if one ends up with -5% per year instead after investing in equities and was not prepared for the volatility.

One is not going to achieve those 6% to 7% per year long term returns from stocks if one withdraws 4% every year. That's because those long term return numbers for stocks are helped by reinvesting dividends along the way, especially those dividends that get reinvested after a 20% to 40% setback and eventual recovery.

VRIF is 53% in stocks. If one was going to invest $100,000 in VRIF, then one better be comfortable investing $53,000 in Vanguard's regular stock ETF's, like the Vanguard FTSE Canada Index ETF (VCE)!

With a diversified ETF, the return one ends up with actually depends more on the what the investor does than what the market does. The "unfortunate" investor who invested in stocks in 2007 and held through what happened in 2008 almost doubled his/her investment by 2017. That's in contrast to those who were not prepared for the volatility and bailed when their losses exceeded 15%.

Those concerns about an upcoming correction are a sign that one is not ready yet.

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