How much do you put into RRSP's?

[Red]

Originally Posted by bizaro86

There's also the piece where you have to reinvest your tax refund to make them comparable. I think a lot of tax refund money from RRSPs gets spent on new TVs and vacations.

I thought HELOCs were for that

[chemgear]

Originally Posted by Red

I thought HELOCs were for that

They're already fully max'd.

[blankall]

Originally Posted by bizaro86

There's also the piece where you have to reinvest your tax refund to make them comparable. I think a lot of tax refund money from RRSPs gets spent on new TVs and vacations.

This is the tricky part, but they can be pretty effective IMO.

Assuming a high income bracket. 10,000 becomes a 3.5k refund, which becomes a 1k refund, which becomes $300 refund, which becomes a $100 refund. Meanwhile, you are collecting growth on all the deposits.

[Husky]

Originally Posted by Cowboy89

Very true if tax rates remain exactly the same now and in the future when RRSP funds are withdrawn. If taxes go up in the meantime, then the use of a TFSA account would be superior vs. a RRSP account, the opposite is true favoring the use of a RRSP account if taxes go down. That is of course it's an 'either/or' arguement rather than the case where you have more than your contribution caps to invest.

I dont quite agree. You are implying that my earnings now will be the same as my RRSP withdraws down the road so that in both situations Im in a simialr tax bracket.

Down the road without big debt (mortgage) I will not need to be pulling out the same income through my RRSP. As such, RRSPs now at high income and down the road at lower income.

[Cowboy89]

Originally Posted by Husky

I dont quite agree. You are implying that my earnings now will be the same as my RRSP withdraws down the road so that in both situations Im in a simialr tax bracket.

Down the road without big debt (mortgage) I will not need to be pulling out the same income through my RRSP. As such, RRSPs now at high income and down the road at lower income.

That's exactly as was implied as it was a follow on comment to a poster who made a statement to the effect of ignoring differences in tax brackets.

[GP_Matt]

Originally Posted by Husky

I dont quite agree. You are implying that my earnings now will be the same as my RRSP withdraws down the road so that in both situations Im in a simialr tax bracket.

Down the road without big debt (mortgage) I will not need to be pulling out the same income through my RRSP. As such, RRSPs now at high income and down the road at lower income.

Keep in mind that once you hit 71, the amount you withdraw from your RRSP (now RRIF) has a fixed minimum. If you have enough in your account you could be forced to withdraw large amounts in the top tax bracket.
I know of course that this is a problem that everyone would like to have and I certainly wouldn't complain if I am faced with that 40 years from now, but it is still worth considering.

[darklord700]

Most people won't stay at the same tax bracket when they retire comparing to that of their working life. However, the downside is, and this is only my speculation, that the tax rates in future years would like be higher than that of today.

Since the TFSA vs RRSP debate can only be settle a few decades into the future for each person, I have subscribed to the idea that as long as you save in either or both TFSA and RRSP accounts, you are doing a good job with your money.

It's like the Fixed vs Variable mortgage rate debate. Which one is better, there just isn't one answer for everybody.

[Husky]

Originally Posted by GP_Matt

Keep in mind that once you hit 71, the amount you withdraw from your RRSP (now RRIF) has a fixed minimum. If you have enough in your account you could be forced to withdraw large amounts in the top tax bracket.
I know of course that this is a problem that everyone would like to have and I certainly wouldn't complain if I am faced with that 40 years from now, but it is still worth considering.

Would have to be a mad sum when split between my spouse and I to even reach the same bracket we are both in now.

[GP_Matt]

Originally Posted by Husky

Would have to be a mad sum when split between my spouse and I to even reach the same bracket we are both in now.

I like to dream big now. You never know what the future will bring and I may not have the luxury to dream so big in 30 years.

[Sylvanfan]

I suppose one way to win might be to try and hit one out of the park thru your TFSA, and if you did, you could than take that money and make a huge lump sum contribution to your RRSP assuming you have carry over room. As an example I have enough carry over room where I could contribute enough and be at my basic personal claim level. In which case the tax savings could become pretty significant. So if my 5000 TFSA contribution blew up to 60000 in 5 years time, I could take that out and make a large lump sum RRSP contribution and get all my income tax money back. Of course it's a highly flawed strategy. Would that be legal, because it could allow someone to hit a big gain, than parlay that into good tax savings.

[Deegee]

Originally Posted by darklord700

Since the TFSA vs RRSP debate can only be settle a few decades into the future for each person, I have subscribed to the idea that as long as you save in either or both TFSA and RRSP accounts, you are doing a good job with your money

The same could be said for rate of returns. If people focused on the good habit of saving rather then just the rate of return they would likely have more money at the end of the day.

[GP_Matt]

Originally Posted by Sylvanfan

I suppose one way to win might be to try and hit one out of the park thru your TFSA, and if you did, you could than take that money and make a huge lump sum contribution to your RRSP assuming you have carry over room. As an example I have enough carry over room where I could contribute enough and be at my basic personal claim level. In which case the tax savings could become pretty significant. So if my 5000 TFSA contribution blew up to 60000 in 5 years time, I could take that out and make a large lump sum RRSP contribution and get all my income tax money back. Of course it's a highly flawed strategy. Would that be legal, because it could allow someone to hit a big gain, than parlay that into good tax savings.

It is legal, but not necessarily a great idea.
If you make $60000 a year in Alberta you would pay $12736 in taxes this year.
Contributing your entire TFSA windfall into your RRSP in one year would then net you a return of $12736. Instead, if you contribute $15000 the first year you will get a refund of $4800. If you do that for the next four years your total refund would be $19200 or 50% more than the single lump sum contribution.

[Slava]

I wanted to take a few minutes and post something usable about RRSP's, TFSA's and how to get yourself saving. I've seen a lot of strategies that my clients use, and here are a couple for consideration. Some might work better than others in your personal situation, and in my opinion the important thing is to save money, regardless of what you decide on as the best choice for your investment! These are in no particular order, and I'll try to post some of the pros and cons of each idea:

1. Monthly/Biweekly Saving: Hardly earth-shattering, you simply set up an automated withdrawal directed to either the RRSP/TFSA and forget about it. I like this because the money just comes out and you basically forget about it after the first few times. I find it also builds quickly here and before too long you can build a nest-egg somewhat painlessly. The thing is, you need time for this and should buckle down and do it. You can do this with as little as $25/month and frankly we can all find that kind of money to save for our own future! The one drawback I would say is possible is that you might have transactional fees if you want to buy securities with this money every month, but there are many other vehicles you can use that make a lot of sense.

2. RRSP Loans: There are numerous strategies to use these and they can be really effective. You can get an RRSP loan, plunk it in before the end of the month, file taxes and use the refund to pay off 1/3 of the loan. I have some clients who take a loan every year and pay it monthly, which is basically a monthly contribution for them. The big advantage here is that they have it compounding for the entire year as opposed to putting the money in monthly. The main disadvantage is that you pay interest on this amount through the year, but the idea is to earn more than the interest rate through the year. You can also do "catch-up" loans where you borrow larger amounts for situations with a lot of contribution room and have the option of stretching the payback period back as well.

The main thing in setting up a savings plan though is to get it rolling sooner rather than later. Don't get paralysed by the multitude of choices and options, and don't over think what you need to do. Often the trick to successful investing has as much to do with not making a mistake as it does with finding something perfect. You can always change it later to something else, and you can always move from one investment vehicle to another as times and your opinions change.

[macker]

Follow Fugger : http://en.wikipedia.org/wiki/Jakob_Fugger

The original value investor......over 500 year old advice.

"Divide your fortune into four equal parts : stocks, real estate bonds and gold. Be prepared to lose on one of them most of the time. During inflation, you will lose on bonds and win on gold and real estate : during deflation, you lose on real estate and win on bonds, while your stocks will see you through both periods, though in a mixed fashion. Whenever performance differences cause a major imbalance, rebalance your fortunes back to the four equal parts." Jacob Fugger the Rich 1459-1525.

[FurnaceFace]

Agree with Slava. The best thing you can do no matter where you put your money, is to setup disciplined savings. Start at $25 when you're a kid working at your first McJob and increase it as you can. The biggest fallacy when I was in the industry was people my age who kept saying "when":
When I get my first co-op work term,
when I graduate,
when I get my first career job,
when I get married, etc.

What happens is often that:
Your work term money gets spent on beer and electronic toys
You graduate and spend your money on rent
You get a job and it goes to a car, clothes, a better apartment, and dating
You get married and now you have a mortgage, a new car, and for many kids on the way

Saying "when" is just a convenient and lazy excuse to help you avoid making tough decisions. Hold off on buying a new phone and save up for a year or pull out the credit card now and pay 19% interest on it? Pretty easy decision in my mind but loads of people aren't willing to wait for some reason.

Best investing for the future wake up call I ever had was working for an insurance company when I finished school. I was unsuccessful at it but I saw what you should and should not do. I'll never forget walking into one guy's house. He has in his 40s, had no real savings, and said "the government will take care of me." I left saying "that will not be me."

[BigBrodieFan]

I am not sure how RRSPs are similar to 401Ks, but the best thing I ever did was start a good 401K a long time ago, and whenever I need to borrow any money, I borrow from myself and pay very little interest (to myself). It's definitely the way to go IMO. I have purchased a home, two cars, and high school tuition using my 401K, and my employer simply takes out the payments from my cheque, I barely even notice it.

[IliketoPuck]

Max my TFSA, contribute the minimum to employer RRSP matching, contribute towards a separate retirement vehicle with some fancy mechanics (essentially a tax free perpetuity at the end of the day).

[darklord700]

Originally Posted by Slava

The main thing in setting up a savings plan though is to get it rolling sooner rather than later. Don't get paralysed by the multitude of choices and options, and don't over think what you need to do.

I agreed. To many people getting fixated on getting the WINS and forget about the fundamental. Too often we only hear about other people's heroic win and not realize that they don't tell your their pathetic losses.

My advice is don't not use the stock market as a legalized casino. A good saving habit will go a long long way that any fancy tax minimizing or return maximizing strategies.

The wealthiest person I know in my life and his situation taught me a lot is one who doesn't know a thing about investment or tax. He's the cheapest of all cheapskates you'll find. All he did was to invest in the real estate, buy one house after any other after the former house was paid off by renters.

We make about the same money and I know ten times more about investment and tax than he does. But I wouldn't be surprised that if we both retire at the same time, he'll have a couple times more money than I will have.

[MoneyGuy]

Originally Posted by Cowboy89

Why does the average investor have to be invested in 100% equities? A reasonable investor would have allocations in other assets too. A more balanced portfolio didn't get raped as bad as the indexes in the early 2000s and in 2008......

I'm probably older than 90 per cent of folks here and my portfolio is pretty much all equities. Yup, it hasn't done well the last decade but my philosophy is I just buy more of the great companies I own and the more they suck the more I like buying them, assuming they are still good companies. Many of you are young and those who don't get this need to rethink your point of view on buying stuff on sale. Buy on sale! This market will turn and when it does it should be big.

[FurnaceFace]

To Moneyguy's point, I learned if you take a historical 40 year cycle, mutuals will get you around an 8% return year on year. I assume this is still the case. Regardless, the real lesson here is if you're buying consistently every month dollar cost averaging will help you in the long run.

Another one, I was also give a rule of thumb the amount of investments you should have in low risk investments is equal to your age. As you get older, the more you move into stable funds and stable investments. Makes sense as you have less time to recover from a gamble.