tag:blogger.com,1999:blog-5465015914589377788.post7268453816786843842..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Should You Save in RRSPs or Not?Michael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-5465015914589377788.post-84441910910867537542020-10-31T15:28:32.338-04:002020-10-31T15:28:32.338-04:00The comment above is a reply to No Debt Guy's ...The comment above is a reply to No Debt Guy's comment:<br /><br />I would find it very interesting to compare investing in the RRSP to paying down a mortgage with a rate between 5-6%.<br /><br />I do hold RRSP's and have a defined benefit pension plan so right now the plan is to get my mortgage paid off asap.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-40331145554531780512020-10-31T15:27:35.642-04:002020-10-31T15:27:35.642-04:00The comment above is a reply to Canadian Capitalis...The comment above is a reply to Canadian Capitalist's comment:<br /><br />Your post clearly shows the advantage of deferring taxes. And like you mention, the numbers understate the advantage of RRSPs because a retiree's tax rate may drop a level or two. The difference is stunning really: Rhonda has 50% more income than Thomas under identical return conditions.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-18545052162141291362010-01-22T10:02:53.372-05:002010-01-22T10:02:53.372-05:00Traciatim: The figures are after-tax income. So,...Traciatim: The figures are after-tax income. So, the $35,074 after-tax income from the RRSP is actually a withdrawal of $58,457. The effect of CPP/OAS/GIS can be complex, but it is likely that the overall tax rate on the RRSP withdrawal will actually be less than 40%. The advantage of the RRSP approach over a taxable account is likely to be even more than it appears from the numbers in my example.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-71300426167195840572010-01-22T09:29:12.613-05:002010-01-22T09:29:12.613-05:00Could you extend this out to include after tax ret...Could you extend this out to include after tax retirement income, and also include government benefits?<br /><br />I just think that with the non registered income being taxed at lower rates he may be eligible for more government assistance, and also his tax rate would be far lower. The person taking the 35K out of their RRSP will be taxed at the marginal rate. Will their quality of life be that much different in retirement? <br /><br />Also, compare this with a person who simply took the 6K and went on a cruise each year of their life? What will they get in retirement having no investment income but have full CPP/GIS/OAS after taxes and benefits.<br /><br />I think this would be a far better comparison.Traciatimhttps://www.blogger.com/profile/07939921958167371917noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-18234797874607314112010-01-21T22:41:23.671-05:002010-01-21T22:41:23.671-05:00No Debt Guy: I can't think of a meaningful wa...No Debt Guy: I can't think of a meaningful way to compare paying down a mortgage versus investing within an RRSP. It would all depend on assumptions about interest rates and returns. For what it's worth, I'm a fan of paying down mortgages. I did away with my first mortgage in 4 years.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-71174590056437984882010-01-21T14:57:49.380-05:002010-01-21T14:57:49.380-05:00James: It's not clear to me exactly what comp...James: It's not clear to me exactly what comparison you're looking for. Is it a comparison of RRSP versus a taxable account where the investment strategy in each is dividend-based stocks where dividends are reinvested and there is no stock turnover? If so, all I would have to do is change the return assumptions to eliminate interest income, increase dividends, and reduce capital gains.<br /><br />In case that's what you're looking for, I made the following changes to my spreadsheet:<br /><br />Capital gains: 3%<br />Dividends: 4%<br />Interest: 0%<br />Turnover: 0%<br /><br />The retirement income (in today's dollars) for the RRSP account remain unchanged at $35,074. For the taxable account, the income is $28,922. So, there is still significant advantage to using this strategy within an RRSP. This test may have understated the advantage because it isn't realistic to have no stock turnover in 65 years of investing.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-83201250649482757532010-01-21T14:10:44.506-05:002010-01-21T14:10:44.506-05:00Michael
Could you also do a comparison between a B...Michael<br />Could you also do a comparison between a Buy and Hold strategy with reinvested dividends. Additional funds to add to existing holdings and no capital gains until funds required as income (or any income required over and above dividend income if that is used at retirement as well).<br /><br />Big Cajun Man: Michael put on his 'normal and unassuming' guise when he spoke with us. Not sure about the real identity!!!Jamesnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-36144706188213908532010-01-21T13:17:40.204-05:002010-01-21T13:17:40.204-05:00Big Cajun Man: Anyone I speak to in person gets t...Big Cajun Man: Anyone I speak to in person gets to know my real identity.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-29720234136151836902010-01-21T12:37:33.566-05:002010-01-21T12:37:33.566-05:00You do public speaking engagements?
Do you wear a...You do public speaking engagements?<br /><br />Do you wear a mask to hide your identity?Big Secret Dudehttp://www.canajunfinances.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-60227991220283722272010-01-21T11:59:08.849-05:002010-01-21T11:59:08.849-05:00CC: The advantage of RRSPs (or TFSAs) is related ...CC: The advantage of RRSPs (or TFSAs) is related to the cumulative return over the investing lifetime. This means that the longer your investment time horizon and the better returns you make each year, the bigger the advantage of using RRSPs and TFSAs versus a taxable investment account.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.com