How much do you put into RRSP's?

[blankall]

Originally Posted by GP_Matt

Is there any maximum in your scenario. ie. at some point if you max out your RRSP's and invest wisely the income generated from your RRSP's can put you in the top tax bracket negating a lot of the savings from your tax breaks on the contribution side.

As an example, a person who maxes out their RRSP from 18 to 65 with an 8% return will have something in the range of $13 million in their RRSP. Once it is converted into an RRIF at 71 you are forced to withdrawal 7% or $900000 a year and pay a huge tax bill.

In that scenario, I think you would have been better off to put the money into a cash account to take advantage of the lower tax rate on dividends and capital gains.

The amount seems unrealistic, but I hear that a lot of the 1% hang out on this board.

Depends on how your finances are.

The only reason, I can come close to maxing my RRSP every year is due to the tax refund from my previous year's contribution. I dump my tax return into my RRSP. With an TFSA, there's no such return.

[Sylvanfan]

I'm very novice at taxes, and too poor to give advice. But if you have 20 grand in taxed income combined with say 30 grand to draw from your TFSA shouldn't that ultimately give you as much or more money than someone trying to take 65 per year from a RRIF?

Obviously the wealthy will use RRSP, and TFSA for income style investments, and than do their equity investing outside the RRSP as it's more tax efficient.

But for the working poor like myself who will be lucky to draw 50 grand in todays money from our retirement fund...would the TFSA be something to use to try and achieve a split where you pay minimal tax later? I mean me writing off 5 grand against my income tax in my working poor bracket gets me back like 1200 a year, enough to buy a month and a half of day care for one kid. Whereas maybe it can save me having to pay 10 times that in tax later on.

As an example if I did 5k a year for the next 30 years at 8% return, that leaves me with around 620 in future value. Or about 24k per year for 25 years. So the tax paid on that amount should be pretty small per year. Which would make it seem the first 5k for that timeline is as well off in the RRSP to get your refund. But if you're investing a bit more, maybe there is a number where the working poor like myself should look at putting our money into the TFSA.

[MoneyGuy]

Originally Posted by GP_Matt

Is there any maximum in your scenario. ie. at some point if you max out your RRSP's and invest wisely the income generated from your RRSP's can put you in the top tax bracket negating a lot of the savings from your tax breaks on the contribution side.

As an example, a person who maxes out their RRSP from 18 to 65 with an 8% return will have something in the range of $13 million in their RRSP. Once it is converted into an RRIF at 71 you are forced to withdrawal 7% or $900000 a year and pay a huge tax bill.

In that scenario, I think you would have been better off to put the money into a cash account to take advantage of the lower tax rate on dividends and capital gains.

The amount seems unrealistic, but I hear that a lot of the 1% hang out on this board.

I'll be in a lower tax bracket in retirement than I am now, so I'm good. Plus, I plan to use leverage to partly offset some of my retirement taxes owed.

[Red]

Originally Posted by MoneyGuy

I'll be in a lower tax bracket in retirement than I am now, so I'm good. Plus, I plan to use leverage to partly offset some of my retirement taxes owed.

I wouldn't say it out loud if I were a money guy

[Red Slinger]

I read an article not too long ago about how many Canadians have too little money in RSPs and aren't properly prepared for retirement. One of the things I prefer in Australia is that there is a mandatory 9% taken off every paycheque and placed into a "Super" (RRSP). So, presuming that you have a job from the time you are 22 years old, you are putting away at least 9% (you can contribute more) to every paycheque for about 40 years. There are obvious advantages and I can't see too many disadvantages to it. Although it feels like a tax it's really more like a bitter pill that's actually a vitamin (ie. good for you in the long run). I think Canada should consider a similar system.

TFSA's rock.

[GirlySports]

max RRSP and TSFA and eat Ramen all year.

[Red]

Originally Posted by Red Slinger

I read an article not too long ago about how many Canadians have too little money in RSPs and aren't properly prepared for retirement. One of the things I prefer in Australia is that there is a mandatory 9% taken off every paycheque and placed into a "Super" (RRSP). So, presuming that you have a job from the time you are 22 years old, you are putting away at least 9% (you can contribute more) to every paycheque for about 40 years. There are obvious advantages and I can't see too many disadvantages to it. Although it feels like a tax it's really more like a bitter pill that's actually a vitamin (ie. good for you in the long run). I think Canada should consider a similar system.

TFSA's rock.

That system is just like our CPP then, no? Or is that on top of a state pension?

And if it is like our RRSP how do they manage any losses that may occur due to bad investments?

I will have to look for some info on it.

TFSAs are great, but the limit is rather low. It may not be enough to retire on. RRSPs are good for income splitting etc. It is a good vehicle especially when self directed and every Canadian would be wise to contribute to one.

To OPs point, I don't believe maxing it is the best way to invest as it will be taxed as income later on. Balance it with other investments.

[FurnaceFace]

Max...and some years a little more...

Shortly I'll be an oil fat cat like Fotze so I guess I'll go halfs with him on the Coyotes.

[csnarpy]

used to be on the RRSP bandwagon but currently on the Seg Fund train and am contributing 12% of my income and the wife is about half that.

[Red Slinger]

Originally Posted by Red

That system is just like our CPP then, no? Or is that on top of a state pension?

It's different than CPP. I believe it's on top of whatever the Australian version of the CPP is but since I'm not paying into whatever that is I'm not sure.

And if it is like our RRSP how do they manage any losses that may occur due to bad investments?

The investor, ie employee, gets to choose which fund the money goes into. Just like a RRSP, if there are losses you lose. The positive, though, is that there is a guarantee of continued investment of at least 9% into various Super funds in the country as long as people are employed, so the funds tend to be a little more stable.

To OPs point, I don't believe maxing it is the best way to invest as it will be taxed as income later on. Balance it with other investments.

I agree with this. My wife and I would do a calculation to determine the amount of RRSP contribution that would ensure us the largest proportional tax return. That way, we contributed a good amount to RRSPs and also got a signifcant amount back in taxes which lessened the pain of contributing a large amount to RRSPs. There's a bit of a sweet spot to find assuming that you are relatively young and not in a hurry to retire.

[V]

My pension takes about 12% which my er matches, and there's a matching plan where I put in 5% and the er matches, so that's enough for me. I'll never max out my RRSPs, but I think I've got enough going on.

[calgarywinning]

I think that at a certain level of income it becomes counterproductive to not contribute the maximum to RRSP's to shift the tax burden to a time when there is no income (loss of job, economic catastrophe).

If you have children, I would balance this with giving them the maximum experience and RESP. Investing in your children is not only extremely smart, but has returns which are not measured in percentages.

If you are young contributing the maximum possible and giving yourself the tax free loan from your RRSP to help with a downpayment (on a shoebox in Calgary these days) is the way to go. I think the government should double or triple this amount based on home prices. Promote ownership, promote savings and balance it out. Obviously, the loss is on the compounded tax free saving which is rendered in an abode.

[CarlW]

Originally Posted by csnarpy

used to be on the RRSP bandwagon but currently on the Seg Fund train and am contributing 12% of my income and the wife is about half that.

Um these aren't mutually exclusive, you can have Seg Funds in a Registered account like RRSP or TFSA. Unless you mean your contributing to a non-registered Seg Fund Account?

[bubbsy]

as a household, we put in 11% of our income each month into our RRSP.

That being said, the mutual funds (through TD) i have garner under 5% return which makes me sad.

Edit: i should really keep a better eye on my RRSP, portfolio. The return is getting much better, it's now at 8%.

[T@T]

Just my opinion, pick 1 stock per month and put 5% on that stock(you might need a little help from friends) and don't even look at them for 12 months.

When each stock is 12 months old...sell it no matter what...you might be amazed!

Reinvest in GIC's,MF's..etc

[Rathji]

Originally Posted by T@T

Just my opinion, pick 1 stock per month and put 5% on that stock(you might need a little help from friends) and don't even look at them for 12 months.

When each stock is 12 months old...sell it no matter what...you might be amazed!

Reinvest in GIC's,MF's..etc

This seems like a really bad idea, but what do I know, I am broke.

[SeeGeeWhy]

I contribute the minimum to max out my employer matching incentive.

[darklord700]

In Alberta, if you are in the 32% bracket, max out your RRSP first to drop you down to the 25% bracket and save 7%. Going from 36% to 32% or from 39% to 36%, the effect is not so dramatic.

[darklord700]

Originally Posted by CarlW

Um these aren't mutually exclusive, you can have Seg Funds in a Registered account like RRSP or TFSA. Unless you mean your contributing to a non-registered Seg Fund Account?

Can someone explain Seg Fund more please? To me, it's an insurance product that promises no less than 75% of your principle back. The downside is reduced return. My company only allows me to contribute to registered seg funds so I do to get the matching.

But giving me another choice, I would rather buy ETF or mutual funds for higher potential returns.

[Slava]

Originally Posted by darklord700

Can someone explain Seg Fund more please? To me, it's an insurance product that promises no less than 75% of your principle back. The downside is reduced return. My company only allows me to contribute to registered seg funds so I do to get the matching.

But giving me another choice, I would rather buy ETF or mutual funds for higher potential returns.

You have the basics there; you receive some guarantees (such as capital guarantees at a certain date, or a guaranteed income stream and death benefits) and pay a higher fee for that. You still have upside depending on the investment mandate but you pay more in a Segregated fund than you would for the same mandate in say a mutual fund.

Generally speaking these can be useful for people in certain situations, such as people who need/want that guarateed stream of income or have estate planning needs.