fibbi

7# 快樂牛郎


Then in your opinion...if RRSP contribution limit is $10K (just make it up), I have $5K saving this year, would you rather put in RRSP or invest some other way?

快樂牛郎

7# 快樂牛郎


Then in your opinion...if RRSP contribution limit is $10K (just make it up), I have $5K saving this year, would you rather put in RRSP or invest some other way?
fibbi 發表於 2010/2/1 01:16

See my other thread for the disadvantages of RRSP.

In my opinion, you would benefit from RRSP if you fit into one of the following categories:

1) No other investment/savings till retirement and you don't plan to work part-time post-retirement.  In this case, your income besides monthly cheques from the government will be ZERO and withdrawing periodically from your RRSP will not be subjected to any taxes or clawbacks.

2) Your annual income qualifies for one of top income brackets and it's very hard to imagine a higher tax rate in the future than your current rate.

3) You only invest in Canadian stocks/mutual funds and do not plan to invest on your own.

There are might be other cases that I missed but that's all I can think of right now.

快樂牛郎

Take a hypothetic case for example.

Suppose I will have saved $2.5 million (in today's dollars excluding inflation) by the time I reach 65.  At a very conservative 3%, I will have about $75,000 in interest income every year.  If I had any more RRSP besides that, my tax rate will definitely not be low and most likely I won't receive any retirement benefits from the government.

快樂牛郎

What I hate to see is that people pitching RRSP as the best investment vehicle when the issues it involves are actually pretty complicated.

But I suppose most people fall under the "No income" category so for them RRSP is a good thing.

fibbi

12# 快樂牛郎


Thanks!

RRSP does give people an incentive to save. Whether or not it brings actual benefit to people is yet to see, but still...good motivation for people to set aside $ for saving.

kingsway

One of the major advantage for RRSP is tax-deferral.  Your investment gets longer time to growth tax-free inside the RRSP account.  Don't be afraid to pay tax when you really need to withdraw funds from RRSP; in fact, you already get the benefit of tax-deferral.  
Of course, to entitle to get more government credit and benefits, one can't only rely on RRSP for retirement, but should have a more comprehensive retirement plan.

tsumorichisato

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快樂牛郎

One of the major advantage for RRSP is tax-deferral.  Your investment gets longer time to growth tax-free inside the RRSP account.  Don't be afraid to pay tax when you really need to withdraw funds from RRSP; in fact, you already get the benefit of tax-deferral.  
Of course, to entitle to get more government credit and benefits, one can't only rely on RRSP for retirement, but should have a more comprehensive retirement plan.

Tax shelter on investment gains is indeed a plus.  But again, this is only true if

1) The future tax rate on withdrawal is the same or just slightly higher than your income tax rate
2) You have no post-retirement income
3) You actually have some investment gains to pay taxes on

快樂牛郎

While we are on the issue of tax savings on capital gains.

Another complication is that, if you hold your investments outside RRSP, you can rebalance it as often as you want and pay taxes on your gains each year.  But inside your RRSP, you will pay regular income tax rate on whatever your withdrawal is.

So, if you have a very large holding in your RRSP, say 300K, and it grows at approx 5% a year, you will end up with over 1 million in your account.  You will be lucky to live that long to spend all that 1 milion before you die.  And even if you do, you will pay a lot of taxes on that $700K in capital gains.

If you hold that 300K outside your RRSP, you can sell your stocks once a year, claim a 15K capital gain each year and owe no money to the government after you pay your taxes.  The tax on a $15K gain is only around $2.5K, which is not that much.

快樂牛郎

The gist is that different people have different needs and RRSP is not for everybody.