How much money do you really need in your RRSP's? Some people say around $100,000.00, others say sky's the limit!!! I say keep as close to zero!!!Here's why:
First of all being a senior citizen has its perks!!! You get discounts on bus passes, property taxes, rent, food, clothes....you name it you'll get a discount!!! Heck they even have one day a month reserved just for seniors called "Senior's Tuesday" at most department and drug stores!!!
Here's the problem with having too much money in RRSP's, when you have a pension, OAS, CPP, GIS, it means the government starts to cut the money that is owed to you since you have withdrawn from your RRSP(Since your income is too high!!). So in turn the government starts to cut back your CPP, OAS, GIS, etc. because now you have income coming in from a pension from work and RRSP's!!!!
My parents are both senior citizens and I do their income tax returns every year and they ask me: "Son when are you gonna finally move out???" Just kidding!!!! They are really asking me: "Son why does the government keep cutting my pension every year??" The answer is simple: Because you made too much money from your work pension and RRSP withdrawals!!!
Solution: What the government doesn't know won't hurt em'....Slowly cash out all of your RRSP's starting now until you have a "0.00" balance. Then put the money in a good heavy duty fire proof safe in your basement and just take out money as you need it. This way you don't get your pensions cut from the government and you have security knowing that you have over $200,000.00 sitting in your basement. As an added bonus when relatives comes over for a visit, you can open the safe and count the money right in front of them!! It makes for a fun evening on a Friday Night!!!
Roc, as usual you're way off the mark in just about every way. It's certainly true that income during retirement will affect clawbacks, but the optimal solution for most people ain't as simple as withdrawing your entire RRSP before retirement.
First of all, there's no CPP clawback - you are guaranteed to get the amount that's calculated for you no matter what your income is. The CPP income will affect the other clawbacks because it's reported as income, but CPP is never clawed back directly.
The 3 kinds of clawbacks that exist are GIS, the age tax credit, and OAS. The GIS is currently around $7,800/year and gets clawed back at a rate of 50% for the first $15,600 you earn. The age tax credit is worth $960/year, and gets clawed back at 2.25% from income of about $32,000 to $75,000. OAS is $6,200 and gets clawed back at 15% from about $66,000 to $108,000. These clawbacks can result in an effective marginal tax rate as high as 71% during retirement.
So, if your income will be between $15,600 and $32,000 or over $108,000 in retirement before considering RRSP income, clawbacks are not a concern to you in terms of RRSP planning. Further, if you've earned over $46,300 in today's dollars on average, currently you will receive the maximum CPP benefit of $12,492/year. In that case if you have just a few thousand dollars of investment income or other pension income, the GIS will be completely clawed back regardless of your RRSP income. Finally, the age tax credit is not worth very much ($960) and gets clawed back at an extremely low rate (2.25%).
As a result, most people in this situation (which is quite common) don't need to worry too much about RRSP income affecting clawbacks. All you need to worry about is ensuring that their marginal tax rate in retirement is not significantly greater than when the RRSP contribution credits were claimed (which is the case for most people). So most people only need to seriously worry about RRSP's affecting clawbacks if they anticipate an income between $66,000 and $108,000 during retirement.
Of course, all these numbers are subject to change relative to inflation since we can't predict what the government will do next year, let alone decades into the future, which makes retirement planning a bit more complex.
The vast majority of Canadians should definitely not aim to have $0 in their RRSP at retirement. The answer depends on who's asking the question. For some people it might make sense to hold back on RRSP contributions shortly before retirement. For most people, the tax-deferred compounding of an RRSP over many years is much too beneficial to pass up.
July 30, 2009
My parents are both senior citizens and I do their income tax returns every year and they ask me: "Son when are you gonna finally move out???" Just kidding!!!!
Its gonna take a stick of dynamite to get Roc out.
He's my hero. Anyway, I have not even begun to look into this RRSP thing. I've been maxing out my RRSP every year but somehow feel I'm investing in a ponzi scheme. I wonder if I will get my money's worth by the time I retire purchasing power and all.
Am I doing the right thing by investing in RRSPs? Is there anything wrong with maxing out RRSP contributions year after year? What are all these clawbacks about.
March 25, 2009
Personally, I don't believe in RRSP's myself, they are indeed "suspect" and you are gambling that tomorrow's income tax rates are the same or lower than today's.
I have $0 in RRSP's.
I would rather have my money now at current tax rates than gamble with future ones. And with a now $200 Billion dollar CDN Gov't deficit (+$60 Billion just this year), I'm pretty sure tax rates are going to be higher in the future.
Now the TFSA account, that's smart.
I agree with ROC on this one. (I never thought I'd say that line!)
RRSPs are far from perfect, but for the average Canadian without a company pension there is no better way to save for retirement. The thing about RRSPs is that you have to have discipline in order to maximize their effectiveness. You know that big tax refund you get in the winter? That's "supposed" to be the government's contribution towards your retirement fund. You're "supposed" to put that refund money into your RRSP and let it compound year-over-year (or grow, in the case of stocks) like the rest of your RRSP portfolio. The problem of course is that too many people take their tax refund and spend it on other things and lose out on all that tax-free compounding they could have gotten. That's the great thing about employer pensions; you can't spend your employer's contribution because according to Canadian pension laws it's "locked in" until you retire (RRSP refunds should also be "locked in" in my opinion, but that's another story). Anyway, once the funds are inside the RRSP, they grow tax-free. Tax free growth is HUGE, especially over a 30-year retirement savings period. As an illustration, if you manage to save up $100,000 in your RRSP by the time you're 40, you'll have well over $730,000 by the time you're 65 assuming an average RRSP growth rate of 8%. If the same $100,000 is invested at 40 outside of an RRSP, you'll only have $450,000 assuming the same 8% growth. These figures assume that you stop contributing at 40; you can boost your portfolio a lot higher if you keep making modest contributions past age 40 (say $200 per month). In that case, you'd have well over $1,000,000 in your RRSP by the time you hit 65 (or about $600,000 outside an RRSP). Also, what many young (say under 40) people don't realize is that once you hit retirement age, you can convert your RRSP into a RRIF (basically an RRSP in reverse), from which you draw funds for your retirement, BUT THE FUNDS REMAIN 100% TAX-SHELTERED. This is huge. Without an RRSP, you can still start a RIFF, but you're starting with hundreds of thousands of dollars less than if you would have saved through an RRSP. Anyway, I'll get off the soap box now, but basically the take-home message is that unless you have a defined-benefit pension plan (e.g. you're a teacher or government employee), or you're 100% sure you're getting a massive inheritance or are the becificiary of a trust-fund, you're best way to pile up the most cash in the shorted amount of time is probably by starting an RRSP and investing from within it.
July 30, 2009
i'm maxing out both TFSA and RRSP though like i said, there's no telling what the value of the CAD will be decades from now when i draw the money.
where does one get 8% returns these days anyway? you gotta be a crack dealer like Roc to get those kinds of returns.
and how is it teachers get guranteed returns for their pension plans while private sector slaves who have job insecurity get the shaft?
The average return for a 30-year period in the world capital markets is 8% since WW2. There will be years of huge growth, huge decline, and no growth during a typical 30-year period, but the overall trend is up. As for teachers, government workers and their pension plans, they form gigantic unions and use their power to extort wage and benefit concessions from their only employer. Politicians who try to interfere get slapped down by union law firms who charge taxpayers big bucks. When lawyers get involved, it makes more sense to just give in to the unions than spend millions of taxpayer dollars on legal fees and have to deal with years of public sector labour unrest. It sucks, but that's just the way it is.
March 25, 2009
The average return for a 30-year period in the world capital markets is 8% since WW2.
Ok, be honest with the numbers. The last 50 year period was more of a black swan than you put make it out to be.
- Huge population increase
- Suburban creation
- 50 year run housing boom
- WW2 and multiple conflicts
- Rise of the computer age
- Women joining the workforce
- Space age
- Robot Automation
- USA becomes the #1 world superpower
- Building of the highway grid
- Nuclear power
So, unless we get simular events happening in the next 30 years...
We will have though in the next 30 years
- Aging population with more over 65's than ever before
- Downgrading of assesets (RE, Stocks, material items due to retirement)
- CPP, SS, OaP running out
- Much higher taxes (personal, federal and provincial)
- Higher gov't debt.
I think it is important to keep in mind that teachers contribute astronomical amounts to their pensions. On average for a beginning teacher close to $500 a month that come directly out of their pay.
'm maxing out both TFSA and RRSP though like i said, there's no telling what the value of the CAD will be decades from now when i draw the money. where does one get 8% returns these days anyway? you gotta be a crack dealer like Roc to get those kinds of returns. and how is it teachers get guranteed returns for their pension plans while private sector slaves who have job insecurity get the shaft?
Sorry, but I had to laugh at the comment above regarding the "astronomical" $500 per month that teachers contribute to their pension plans. First of all, assuming that $500 monthly figure is accurate, the provincial governments match teacher contributions on a DOLLAR-FOR-DOLLAR basis, so in reality a $500 contribution is really a $1000 monthly contribution with the teacher only having to pony up half. People in the private sector who are lucky enough to have an employer-sponsored pension in the first case don't have their pension contributions matched on a dollar-for-dollar basis; there is usually some upper cap beyond which the employer will not contribute. One private plan I'm familiar with caps the employer's contribution at $2,300 per year regardless of how much the employee contributes. So let's say this private sector employee contributes $500 per month to his pension plan for a total of $6000. His employer would kick in an extra $2300 for a total employee contriburtion of $8,300. But a teacher contributing exactly the same amount would get an extra $6000 from their employer (the provincial government which is really the taxpayers) for a total of $12,000. That's $3,700 more than the private sector employee even through employee contributions were equal. Of course, many, many people don't have an employer-sponsored plan at all. Their employer might run a group rrsp for employees, but there are NO employer contributions. This basically describes the vast majority of small businesses in Canada. Then we have defined benefit pensions. Teachers know exactly how much they get when they retire no matter how well the teachers pension fund does. That's because taxpayers are forced to fund any shortfall between money in the fund and payment obligations to teachers. Teachers might have a small increase in contributions, but make no mistake it will be the taxpayers carrying teachers through their retirement. Contrast this with the rest of us who, assuming we have an employer pension to begin with, have defined contribution plans, which do not guarantee a fixed amount at retirement. People with defined contribution plans are at the mercy of the financial markets. If the markets tank when they retire, so do the retirement payouts from the pension plan. Teachers will never have to worry about this because taxpayers are on the hook for topping up teachers pensions if the financial markets tank. Oh and one more thing... teachers can and do contribure to RRSPs IN ADDITION to their gold plated pensions. The amount they can contribute to an RRSP is reduced by the value of their pension contributions (called a "pension adjustment" by the CRA), but teachers make full use of this and in fact teachers are vastly overrepresented in the group of taxpayers who manage to max out their RRSP contribution limits each year. So to the poster above, please think before you start whining about the $500 monthly pension contribution that these poor, poor entitled teachers have to make.
November 8, 2009
amazing how anyone would try to defend a teachers financial position. The benefits package, compensation and pension is platinum plated. Teachers get special treatments unheard of in most other areas. Teacher-only insurance plans, 100% drug and dental, huge sick days that can be banked and cashed in at the end of a career for tens of thousands bonus, months of vacation off even at the start of career when most would be lucky to get a week per year, guaranteed raises with extra raises based on completing summer courses. All backed up by a huge pension fund fueled by the suffering tax payer cowering from the threat of their own children being used as black mail against them. No politician will mess with them. I am writing from the point of view of a parent watching for the results of the strike vote for ontario colleges... after paying for my kids tuition it may be derailed by these greedy, over important, self serving, arrogant extortionists pulling the plug on the kids lives. Yes I know the college teachers are not the same as the high school or public but its the same concept of kids being used as a weapon!!!! (deep breath) I feel a little better now...
You want 8% returns? Check out ACIC (All Canadian Investment Corp) They have been in business for about 11 years and have generated at least 8% every year. The investment is backed by real estate. It's not totally guaranteed, but it's about as close to being guaranteed without being guaranteed. They have a minimum requirement of $5000 opening investment, with additional investments in $1000 increments. They also have an RRSP option, although you need $20000 for that. Maybe someday they'll get a TFSA option.
If you're wondering about their rating, they received an A+ rating from the BBB.
I won't be putting my money in real estate any time soon, whether it's directly through property ownership (principal residence excluded) or indirectly through a corporation like this one. There's way too much risk on the horizon with the commercial real-estate bubble not to mention the coming dramatic rise in variable-rate mortgage payments for residential property mortgages once the Bank of Canada turns off the money-spigot and starts raising the bank rate (expected as early as this summer). I don't know anything about this particular company, but a quick look at their website reveals that their investment properties are all located in Alberta and BC. The health of Alberta real-estate is tied to the price of oil (and to a lesser extent natural gas), and BC real estate in the greater Vancouver area is grossly-overvalued to begin with and overdue for a plunge. Also, the website says that investment returns from the company are treated as interest income, which basically means you'll be paying tax on this investment at your marginal tax rate. That's big bucks. A quick search on redflagdeals.com suggests that this company makes their money by offering a form of bridge financing to property developers which certainly raises red flags for me. Anyway, others might disagree with my reasoning but I'll be taking a pass on this.
As far as RRSP's a concerned, I believe they are a complete rip-off. There are a coupe reasons.
I asked a number of seniors who are already retired a very simple question. I ask them, without wanting to know any specific numbers, "Have they ever earned more money in their working career, then they are currently claiming on their current tax return. The answer was always the same. They all had higher incomes in retirement, than any other preiod in their life. So, what they were doing, was making contributions in lower tax brackets, then their current tax brackets. The, as mentioned here before, they end up paying much more tax, as well as getting claw backs on OAS. I know this is true, becasue as a stupid young man, I was told by almost everyone I spoke to, make you RRSP contribution. I was only making 18,000 a year, and I was in the lowest tax bracet possible, and still the matra was - Make the contribution. It's crazy!! But guess who wants you to make the contribution the most! The Banks, who want to loan you the money to make the contribution, and then charge a fee to manage the RRSP, or even worse, would like you to put it into one of their managed funds or mutual fiunds, scraping more creems off the top for themselves!! This crazyness has to stop
A second reason is Didivends, which are distributions to shareholders, after tax is paid, where shareholders are suppose to get a Tax Dividend credit, don't get that credit in a RRSP, and when those dividends are taken out of the RRSP, the government taxes then as income, not dividends
Do yourself a favour, and start a TFSA
As far as RRSP's a concerned, I believe they are a complete rip-off. There are a couple reasons.
I asked a number of seniors who are already retired a very simple question. I ask them, without wanting to know any specific numbers, "Have they ever earned more money in their working career, then they are currently claiming on their current tax return. The answer was always the same. They all had higher incomes in retirement, than any other period in their life. So, what they were doing, was making contributions in lower tax brackets, then their current tax brackets. The, as mentioned here before, they end up paying much more tax, as well as getting claw backs on OAS.
Yep, my mother has the same problem. She put way too much money into RRSPs and has a higher yearly income now than when she was working, and can't even get any GIS (Guaranteed Income Supplement) money as a result, which is half of what makes up the government pension! So she's paid high taxes all her life only to not qualify for one of the two income plans the government offers seniors in retirement, income plans funded by her tax dollars all her life!!! Wealthy people get no government pension at ALL despite having paid the most taxes their whole life! Talk about robbing from the rich.
Both her and a financial friend of mine say always max out your TFSAs during your twenties and any other years you have a lower income, or if you are a low income earner in general, before putting any money in RRSPs. TFSA should always be filled with money before RRSPs are *ever* touched.
99% of the time there's no need for any retired person to be drawing more than $30,000 a year from all sources during their retirement, and most can live comfortably on $20,000. Plan accordingly, especially if you have no or few kids to inherit what'll be left when you die. Make sure you don't plan to draw so much that you won't even qualify to get your tax dollars back from the GIS!
Look at this from the government's website, outlining their scam: "Note - Pensioners with an individual net income above $66,733 must repay part or all of the maximum Old Age Security pension amount. The repayment amounts are normally deducted from their monthly payments before they are issued. The full OAS pension is eliminated when a pensioner's net income is $108,090 or above."
Here's the full page with a table of OAS and GIS rates: http://www.servicecanada.gc.ca.....ates.shtml
To Prag: It sounds like your mother is experiencing a very common situation among people who earn in the lowest tax bracket and who have modest amounts in their RRSPs. She probably would have been better off collapsing her RRSP before retirement which might have entitled her to at least some of the GIS. Unfortunately, RRSPs really only make sense for people who earn well into the upper tax brackets. These people can use their RRSP deductions to minimize or even eliminate the higher taxes that high income earners have to pay. I also agree that people who earn lower incomes (say less than 40K which is roughly the upper-limit of the lowest tax bracket) should max their TFSAs and pay off debt before considering RRSP contributions. TFSA withdrawals have no effect on eligibility for government pensions and the GIS.
This is a letter I sent to the RBC, communications department, I could not find an other channel or address to file my complaint.
I worked and lived for 10 years in Canada.
I saved into RSPÂ´s.
I requested a pay out, so you did.
You send me a check......
So far so good, (*not really one should pay to Europe with an international electronic money transfer, yes the one with an BIC and IBAN number!)!
1. you were too slow to pay
2. you send me a check I could not cash anywhere in Madrid, Spain, Europe
3. I was forced to send it with registered mail to my bank in the Netherlands
4. They sent it to you for cashing in.
5. Some how, you or/and my bank lost the check!
6. I called your 1-506-864-2275 (collect) number.
7. they could not trace the check! Really, they could not......
8. My bank the ABNAMRO could not trace the check of C$ 1551.- !!! Either!
Now, how do think I feel about that?!
I can only communicate with 1-506-864-2275 it does not help me out!
I need to speak to the Branch!
Exact the same story is with the ABNAMRO!!!
(They are owned now by the Bank of Scotland!)
So, with this crisis and all the banks stealing and/or loosing money of their clients, I have a goose chase for MY money!
Money I worked very hard for.
In this case both banks donÂ´t communicate well at all.
My money is gone!
And YOU BLOCK FOR ALL KIND OF SILLY or worse REASONS COMMUNICATIONS!
(in the hope the client will give up? , so you can pay the shareholders more money, pay out a fat bonus to your top executives?)?
I thought that after so much bank failures one would focus on CLIENT COMMUNICATIONS AND REGAIN THE TRUST, they LOST in you, "the banks", (if possible at al), of your clients.
So far I think all Banks are crooks.
M average interest on my RSP was only 2%!!!! (breach of contract, I still have the investment conditions you gave to me when I bought in the RSPÂ´s , you guaranteed a minimum of 5%)
Madrid, Spain, Europe.
*By the way;
You did not pay all of them out, I can prove that.
"Just with holding money" is a criminal offense. I can prove it.
Now I am looking for a very good lawyer in Toronto, one that will sue you so much you wonÂ´t believe it!
He will contact you.
Will any GOOD lawyer take this on please?!
I donÂ´t know any lawyer in toronto!
Sorry for the trouble you experienced gaeeting your RRSP funds. Did you make it abundantly clear to RBC that you would be negotiating the cheque in Spain? If you did there shouldn't have been a problem. Good luck.
By the way, it would have been best if you retained a lawyer BEFORE sending the letter to RBC... bank people do read this website from time to time you know.
RRSPs are not good for people who will not have much income in retirement. As has been noted above, if you have enough assets that you will not be getting any social benefits in retirement (the Guaranteed Income Supplement is the elderly person's equivalent of welfare, and we don't expect everyone to get that you will only gain from RRSP assets. IF you'll be so poor that you'll never lose benefits, even with carefully timed RRSP withdrawals or annuity or income trust payouts, you'll gain.
Most analysts say that, while a lot depends on a lot of rates (tax, annuity, interest), a general rule of thumb is that you shouldn't put anything in RRSPs inless you expect to have about $400K or more IN THEM (not other assets) at retirement.
RRSPs, by the time the Chretien government took over from Mulroney, were already a benefit primarily for the wealthy. The recent creation of TSFA/TFGIC plans was in part to address this, though ALL these plans favour the wealthy.
IF you have periods of unemployment or low income, you SHOULD do the math to figure out if you should cash in RRSP assets. Unlike TFSA products, you cannot put the money back in. Remember to do withdrawals in increments of under $5K to get the minimum 10% tax witholding rate, and if possible to the withdrawals near year-end to get that tax overpayment back. Withdrawing a big chunk in one transaction can mean loaning the government a third or more of your assets for however long it takes to get your tax return!
Don't diss good corporate pension plans: they are a good deal, and every employer should be providing a good one rather than bitching about companies that don't. A company-managed plan (even WITHOUT the corporate contribution) will earn about DOUBLE what your own savings can earn! The management fees in corporate plans are paid by the employer and are cheap, while mutual fund and other money managers will steal more than half your PRE-tax interest.
The spectre of non-guaranteed private group plans with no employer contribution or management control is a deliberate attempt by the ideological conservatives to get rid of the Canada Pension Plan -- because they hate that their money may ever benefit anyone else, even if it benefits them, too. That's why we constantly hear right-wing pundits predicting the failure of our public pension plans even though they are actuarily sound and backed by the full force and power of the federal purse.
We should be demanding that our governments protect our investments in the CPP and keep it properly funded -- by contributions AND by taxes, as needed. It's not as good as what the lawmakers get, but it's better than anything the money managers will do to us.
CPP exists to provide income for retired Canadians. Money managers exist to take it away. That affects everything they do.
To clarify something else said above (not incorrectly, but it could be clearer): when you retire, you have to move your RRSPs into annuities, income funds or the like - the PRINCIPAL in those instruments is tax-sheltered, but the PAYOUTS are still taxable income.
If you don't take such an instrument, the entire sum in your RRSPs in treated as taxable income in the year you designate retirement. There are some situations where it is best to do just that, as you will not be paying more than you would otherwise, to allow all your income-tested benefits to come back in the following year. DO THE MATH! Everyone's case is unique.