The illusion

Like sticky little Venus flytraps, the nation’s bankers and mutual fund salesguys line life’s ditch waiting to eat you. Especially now. It’s RRSP season, and you are prey.

Today’s topic was scheduled to be a look at what REITs will do in 2012, after showering investors with a 22% capital gain last year, plus a 5% distribution, at a time when the TSX choked. What happens to real estate trusts when the housing market tanks? What effect will there be when the sky darkens with plunging condo investors? How much risk is there? And as the Amazons keep wondering in amazement, how long can it remain aloft?

However, many blog dogs have asked that I address the hoary issue of registered retirement savings plans. So let’s do it. Since 1957 when they were invented, these have been pushed hard as the no-brainer thing to do if you wanted to retire without grocery shopping at Pet Smart. But times have changed, and now we have the TFSA. It’s dawning on more people that ‘registering’ your retirement nestegg with the government might be the last thing sane folks do.

Of course, we all know the purported benefits of an RRSP. You get money back on your taxes since the contribution is deductible from taxable income. Your investments can swell free of tax. And when you retire you can withdraw money at a lower rate than when you contributed and received a refund.

In reality, though, sticking money into a plan just refunds taxes you’ve already paid – there’s no additional cash. Plus you are merely making those funds taxable once again. How smart is that? Tax-free growth has been an illusion for most investors in mutual funds or GICs over the past few years (the most popular choices), so kiss that one off. And, sadly, way too many retirees are finding their RRSPs are costing them more taxes, not less.

So, here are eight reasons RRSPs might suck (followed by some strategies).

First, let me emphasize a point already made: people make RRSP contributions with money they earned and already paid taxes on. By throwing it in, they get those taxes back. Cool. But then they make their money taxable again. This is not tax avoidance, or even tax deferral. It is tax illusion. You’re merely gambling that some day, decades from now,  you’ll be taxed at a lower rate. That’s when we all get ponies.

Second, when you do collapse your RRSPs and suck out the money, it’ll be taxed as income. As with interest and rent, income’s taxed at the highest rate. Do you really understand this? If so, why would you put stocks, preferred shares, equity mutual funds or ETFs inside a registered retirement plan? Sure the growth is tax free, but just think of the tax advantage you are squandering. Capital gains and dividend income are taxed at the lowest possible rate (about 15% on average), but coming out of an RRSP all growth and distributions are dinged for (on average) twice that amount. Duh.

Third, you can’t borrow money to invest inside an RRSP and deduct the interest. Fees you pay to have one managed are not tax-deductible. Nor are trading costs or commissions. But if you contribute to a non-registered plan, then everything can be written off your taxable income – and the money you take out later to live on is tax-free.

Fourth, what happens if personal tax rates increase? Exactly. You are a screwee. After all, does anyone on this diseased blog really believe that economic growth will allow the federal or provincial governments to balance their budgets, banish deficits and rescue health care, what with corporate taxes going down and wrinkly Boomers set to suck the system? An increase over the next ten or 20 years might mean you get a tax break now only to cash in RRSPs later at far higher rates. Bummer.

Fifth, the first ‘R’ means ‘registered.’ These are funds the government tracks, monitors and controls. Years ago some politicians in Ottawa proposed a ‘small’ tax on the RRSPs of wealthy people (those with a few hundred grand in there). Smart idea. After all, investors are sitting ducks, able to avoid such a tax only by withdrawing funds – and being taxed. Now imagine an NDP government…

Sixth is the myth most of us subscribe to, that our tax bracket is always higher when we work than when we retire. Hence, smart to RRSP. But for many people it doesn’t work that way. If they have any kind of a pension, or start adding in the CPP and OAS, or are smart with their non-registered investments, they can soon find themselves in the same bracket as when they were workies (or higher). This is not pleasant but better than poverty (which is why RRSPs are best suited to lower income earners).

Seventh, all RRSPs eventually turn into cashable income. You can only hold out until age 71, then these things rupture into an income stream you must take, and declare. If your RRSP is fat this can push you into a higher bracket. This, plus most of the points above, is why RRSPs can become tax bombs.

Finally, this additional income and the tax consequences can result in having your government benefits, like OAS, clawed back. And while I know most struggling families have zero sympathy for old farts being raped by the CRA, tough. Why should retired people be financing F-35 Lightning II Joint Strike Fighters?

So, are RRSP useless? Of course not. Somebody has to support starving Investor’s Group reps.

Actually there are four excellent reasons to consider making a contribution – yet only in certain circumstances. But I’m tired of typing. Tomorrow. Then we rock.

188 comments ↓

#1 TurnerNation on 01.15.12 at 6:22 pm

First??

So you want to short the Vancouver real estate market?

There exits one public company, Wall Financial symbol WFC, that appears to be operating exclusively within the Van build, rental, and hotel markets.

Their Sheraton Wall Centre hotel and condo project – in true Van style, natch – began leaking, with a multi million dollar repair bill for owners.

Recently they were flogging condos in the False Creek area.
They also own student housing rentals, rental units, and interests in other area hotels. Read their quarterly MD&A for more info.

I suppose you could short it, if you can find the borrow. It’s illiquid and from time to time pays a whopping ($1 or so) dividend along-side regular dividends, which must be paid if you are short. Current yield is over 8%.

Here’s the chart:

http://tinyurl.com/89n6g6x

Company founder, info:

http://en.wikipedia.org/wiki/Wall_Financial_Corporation

“Wall’s friend Bob Rennie, who has worked extensively with him, described the Wall formula as “Great location, smaller suites. Put in a Sub-Zero fridge and a Wolf range with red knobs, and they’ll line up to buy it”.[40] In May 2008, Wall Corporation bought a building at 1212 Howe Street in downtown Vancouver. In charge of the building’s sales and marketing campaign, Rennie claimed that it “played right into Peter Wall’s model of ‘take a prime location and undersize the suites a bit’ “.[41]”

You don’t say….

#2 TurnerNation on 01.15.12 at 6:30 pm

First again! I wasn’t even trying – I just returned from grocery store, ate, and sat down to check emails.
I wrote my post earlier in the day, it was sitting in my PC’s notepad.

Poor Josef must have worn out his mouse button by now.

#3 T.O. Bubble Boy on 01.15.12 at 6:33 pm

Garth – you didn’t mention company matches… the real reason that many people still use RRSPs (even with the long term tax benefits being questionable at best) is that you have many employers matching some percentage of the contribution (or even 100% of the contribution in a few cases).

Part deux tomorrow. — Garth

#4 Uh Oh Canada on 01.15.12 at 7:10 pm

I like the Garthisms in your posts. This one- ‘screwee’- beats them all.

#5 XTR on 01.15.12 at 7:11 pm

I do not understand the point #1: assuming I did not file T1213 (to decrease withholding taxes) I would:

1) use after tax to make RRSP contribution
2) get a tax refund, which means the contribution is not taxed
3) when I withdraw I pay taxes (less or more is a different issue)

Where is a double taxation here? I get all the other nine points, but this one is not clear. Thanks if you explain.

#6 Bobby on 01.15.12 at 7:16 pm

Looking forward to your update tomorrow Garth. I have sizable RRSP’s that are distributed equally between my spouse ( spousal RRSP) and myself. Was looking to that as a way to income split? TFSA’s are maxed out too.
Perhaps there is a better way?

#7 Randy on 01.15.12 at 7:16 pm

Investigated working for a couple of Financial Services Companies and checked out their product offerings….then I remembered that I had a conscience and folded the deck to try something else….

#8 Onemorething on 01.15.12 at 7:18 pm

Company matches for RRSP Only? Dont think so, ask!

I agree with Garth on all his points, I took out all my contribution in the mid 90′s. I knew all the Mutual Funds reps on Bay street at the time when I was offered to join the ranks and really was clear on the opportunity.

Self directed ever since!

#9 InvestorsFriend (Shawn Allen) on 01.15.12 at 7:18 pm

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#10 InvestorsFriend (Shawn Allen) on 01.15.12 at 7:21 pm

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#11 InvestorsFriend (Shawn Allen) on 01.15.12 at 7:22 pm

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#12 itanic on 01.15.12 at 7:30 pm

Garth, you’ve failed to mention the benefits of compound interest when it comes to RRSP. Because you’re starting off with a larger amount of principal thanks to the tax refunds (or credits) now, you should in theory be able to grow your RRSP’s that much faster in the long run. However, this depends on you:
a) Buying into your RRSP’s early, in your younger working years
b) Making a consistent return above inflation

On the flipside, you’ll probably be in a lower tax bracket earlier in your career, so the tax refunds/credits might not amount to as much.

I do disagree with your take on RRSP’s not being tax deferrals. They are taxes you would have had to pay now, which you can instead pay later. That it’s in a form of a refund or credit in the current tax year only matters when it comes to the opportunity cost of investing those amounts in the months between the paycheque deductions and when you receive your refunds. And if you’re paying into your RRSP’s at a fixed rate, they can be factored into your deductions so that you don’t even have to wait for your refunds.

#13 corey@kaye on 01.15.12 at 7:35 pm

Both of my last two jobs (10 years and 5 years) matched my contribution. I’ve left both and taken both with me but their locked in LIRAs… and it’s killing me! So much money i could do something good with but I can’t touch it! MADDING!

Thanks for the REIT and RRSP talk. There’s a lot of misinformation out there.

#14 ElipseinTO on 01.15.12 at 7:36 pm

I’m a young guy and newly married. I read quite a bit of your blog posts and we canned the idea of buying a house. Following your advice of liquidity and all that. We also recently bought money road. I got the feeling of you being strongly in favor of using RRSP’s from that book. So much so, that this past week I opened an RRSP account and shipped a good chunk of our savings there to benefit from tax season. Your discussion of RRSP’s in the book was very “positive” for everyone and this post sounds like “Why would you ever do that?”. Feels like the advice from the book and this post are conflicting.

I hope you take the time in part 2 to really clarify the issue.

#15 a prairie dawg on 01.15.12 at 7:39 pm

Garth,

For those of us with a few hundred K in RSP’s, what can we start doing with them right now while we’re still working?

Obviously cashing them out now in the highest tax bracket (which the wage provides) would be suicidal.
They won’t be my main source of retirement income either.

Tomorrow, would you be so kind as to toss a bone to the dawg pack on that particular RSP ‘problem’…

Thanks

#16 Ron@Delta on 01.15.12 at 7:46 pm

Darn – I was waiting for the part that would tell me what to do to the 23k I’ve already put into RRSPs. Personal note (and hoping I don’t skewered) – my RRSP contributions were calculated to negate the amounts I owed that tax year, did I screw up?

#17 from kits on 01.15.12 at 7:56 pm

how about you measure contributions to your RRSP and taking the money you receive from the tax return and putting it directly back into your RRSP/TFSA. That seems like you are further ahead then not contributing and having to pay the 40% in tax?

For me I paid $32,000 in tax this year. If I max out my RRSP at around 20k I will get approx. 8k back. I put that 5k in my TFSA to max it out for 2012 and then the remaining 3k in my RRSP for next season.

If I didn’t do this I would have 8k less to work for me over the next 30 years?

Great post today, looking forward to tomorrow.

Would love to hear more about REIT’s, I’m considering borrowing to invest in these for long term growth through some ETF’s you’ve mentioned in the past.

cheers

#18 MB on 01.15.12 at 8:01 pm

Fantastic topic Garth. Would you recommend a late 20-something with little savings so far (just re-entering the workforce after upgrading education) to use a RRSP to save for a home purchase when I’m older and home prices come back down to earth?

Cheers!

#19 Ian on 01.15.12 at 8:02 pm

income at 100%
legislated at 9.9% employer/employee CPP contibution
taxes in one form or another at 45% to live in a ‘civilized society’
rrsp contribution 18%
left to live on 27.1% of the remainder, how does this work?
hopefully retire on 50% of pre retirement income (or is this to much to ask for)?
WTF? Dude.
Each ‘Canadian citizen’ has an equal share in this country. We are “entitled” to a fair share of the redistribution of our countries wealth. Why is anyone in their right mind thinking that they deserve more than the next guy. Why in the world do we have a foreign aid bill of $30 billion. Charity begins at home. The below link might help explain. http://www.independent.ie/opinion/columnists/gene-kerrigan/gene-kerrigan-top-people-milk-system-while-we-suffer-2982492.html
Whats your answer Garth?

#20 abraxas on 01.15.12 at 8:10 pm

Thanks Garth. This has been one of the best laid out arguments against using RRSPs. I’m looking forward to reading about the cases when they do make sense.

Thanks again for a super informative post.

#21 a prairie dawg on 01.15.12 at 8:12 pm

#8 Ron@Delta

Ron, by paying into them regularly and having the offsetting tax deducted up front, you’re actually doing yourself a favour or two.

1. More time for investments to compound vs. a lump sum yearly contribution

2. CRA doesn’t sit on your money interest free until you file and ask for it back in a refund.

If ya gotta do an rsp, that’s the way to do it.

#22 m hayes on 01.15.12 at 8:13 pm

as a financial planner at a bank that sells investments i wholly agree that rrsp’s are not right for many people… that is why i consider each household individually and almost always RRIF way before 71.
I agree that TFSA is a great alternative and often RRSPs do nothing but defer tax.
However the thing that terrifies my on behalf of the general public is the non pension earner who has no savings at all. I think you are talking to a small segment of people who are wiling to investigate and educate themselves and have the money to have these choices. I hope the 4 good reasons will be discussed too.

I am paid salary plus bonus. no product payments and I dont get paid differently if someone uses RRSPs , Brokerage, Private Wealth Group, GICs or Mutual Funds. I have been offered jobs with commission and product linked income that I decline..
I dont like your description of the behavior of a ” banker”…I know you are speaking of the majority but it would be nice for someone just once to say that there is some integrity in my work group.

#23 InvestorsFriend (Shawn Allen) on 01.15.12 at 8:13 pm

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#24 House on 01.15.12 at 8:15 pm

Have you by any change ever heard of the Future Valve of Money?

#25 a prairie dawg on 01.15.12 at 8:21 pm

#16 Ron@Delta

Unless of course you’re using your yearly tax refund to max out your TFSA…

doh

#26 Dr. WAYNE on 01.15.12 at 8:30 pm

InvestorsFriend (Shawn Allen) … Christ … the guy doesn’t give up …

#27 JO on 01.15.12 at 8:30 pm

Garth, can you include some good ideas on how to take money out/cash out RSPs efficiently. Only 2 I know of are 1) if income is much lower than “normal” in a tax year, or 2) RSP meltdown where we withdraw money from the RSP to pay tax deductible interest on tax efficient non registered investments. Outside of these 2, how can someone making 55-60K take money out from an RSP without getting destroyed tax wise ? Homebuyers withdrawals are not a good idea from what i can see..maybe you can share more light on HB RSP Withdrawals. Rates are too low on mortgages and most don’t have at least 150-200K in RSPs to make RSP mortgages worthwhile.

I see a high chance that RSPs will be taxed and that our income and other tax rates will go higher, so I am planning to cash out my RRSP over the next few years.
JO

#28 Jenna on 01.15.12 at 8:36 pm

What about RESPs?

#29 Jack Lemming on 01.15.12 at 8:37 pm

Is there a antidote for the RRSP Kool Aid?

#30 The Thing in the Basement on 01.15.12 at 8:40 pm

(which is why RRSPs are best suited to lower income earners). – Garth.

Huh? A low income earner will probably have a low
income retirement. No benefit because in similar tax
bracket.

Prairie Dawg @15 – research “RRSP meltdown” as possible option. Not recommended for everybody

Garth – if Shawn promises to be good can he play with us?

#31 Retired Boomer - WI on 01.15.12 at 8:43 pm

The US equivalent?

We have 401(k), 457, and 403(b) plans here.
The 401(k) is a pre-tax savings vehicle for most wage earners in a corporate type setting. The 403(b) is the same for wage earners in a non-profit industry, i.e. teachers, etc. The 457 is most common in a gov’t setting and is a salary deferral plan (you just didn’t take a portion of your pay check). ALL can be matched by an employer.
ALL are tax-deductible in the year they are made from earnings. They ALL grow TAX-Deffered. You cannot open them up without paying a penalty of 10% plus TAXES before 59.5 years of age-there are a few exceptions to that. You MUST start taking deductions by age 70.5

We also have the ROTH Savings plans an after TAX plan where no further are ever due on the contributions & earnings. ROTH participation is limited by the size of your income. Over $163,000 married filing jointly forget it.
Single, it cuts off at like $80,000.

Both have limits. Both have advantages.

Usually a moderate wage earned who does NOT get an employer match is better off using the ROTH. You max out your contribution at $5,000 a year $6,000 at age 50+ No required withdrawals ever.

Any match is TAXABLE regardless of plan.

Most people use their 401(k), 457, or 403(b) to collect any employer match, it’s FREE money guys!!

For an average American Family earning say $50,000 it would be HARD to put away more than 15% of salary into any savings vehicle with a match, even HARDER to MAX out a ROTH of $10,000 or $12,000 if they are over 50.

Great if they can do it. Saving money is NEVER easy, it is just too dam hard to live right now for most, especially the younger ones. Denial is a river in Egypt to them.

Not impossible, but HARD Everybody wanted the EZ way

#32 Christine on 01.15.12 at 8:45 pm

Thanks Garth, and I’m looking forward to tomorrow’s post. Given that I’ve already got the RRSP’s building up (and the TFSA maxed), it would be good to know the optimal way to take money out of an RRSP with the lowest tax hit. Thanks again!

#33 Freedom first on 01.15.12 at 8:54 pm

Garth, great post on RRSP’s! And it is so good to see people thank you for informing them on financial issues like this and making a very positive difference in their lives! You have really earned many people’s trust, and deservedly so. I have read financial information to educate myself since my teens, but I find I learn things from you on a regular basis, and it is much appreciated, and also great to see there is others like you, and some people who write to you, that reinforce I am on the right path. Although my life, and my finances prove that to be true, it is nice to listen to other thinking people:)

Most unfortunate, that, on a regular basis, some posters on here misinterpret your meaning on certain subjects, like some have already on today’s topic of RRSP’s. I would urge people who question what you are writing about to read your message 2 or 3 times, and think about it, before they post. Be nicer for everyone, however, I am aware that you have written that you have done your job by giving the messages, and what people do with the information is up to them. I still admire your patience. Thanks!

#34 Daisy Mae on 01.15.12 at 8:54 pm

“Somebody has to support starving Investor’s Group reps.”

********************************

Damn! That company is a sore spot with me. Anyway, I’m in excellent hands now! ;)

And I’ve forwarded this blog to my kids because, as usual, it is very enlightening. And they’ve gotta be made fully aware.

#35 Raj on 01.15.12 at 8:57 pm

HSBC stuck with sub-prime ,wait a minute,do we have sub-prime in Canada?

http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/banks-consumer-lending-units-proving-a-tough-sell/article2303237/

#36 Capital Loss on 01.15.12 at 9:14 pm

I don’t worry about any of these tax vehicles. I have more capital losses then most have savings. I could hit the stock lottery now and not pay any tax. lol

#37 sam.i.am on 01.15.12 at 9:16 pm

Is there any point throwing some support to Investors Friend or has he been permanently booted? His comments are generally positive and I do think he adds some benefit to this site. His investing results have been superior (15% per annum for 10 years) which says to me, he is someone to learn from or at least observe how he approaches the art of investing. As it goes with the Internet, sometimes people come across in email or blog postings much differently than they would in person. I’d vote to give him another chance.

#38 DM in C on 01.15.12 at 9:19 pm

Re: Shawn Allen — let the self-serving SOB stay banned. One less blowhard on a blog with ample supply.

#39 Onemorething on 01.15.12 at 9:21 pm

Whatever Gordon Pape is doing…do the opposite!

#40 guava.ca on 01.15.12 at 9:30 pm

Andrew: For the sake of your finances and your marriage, let your wife make the big decisions. You didn’t have a loss. Owning the last 7 years, according to your numbers, was better than renting by about $20,000.

#41 Kurt on 01.15.12 at 9:30 pm

Ian:

“Why in the world do we have a foreign aid bill of $30 billion.”

Foreign aid is almost always a subsidy to a domestic company. There are a number of ways to work this trick – Germany “gave” the Aswan High damn to Egypt, but all it really did was funnel German taxes to German engineering firms. I don’t feel like doing the legwork to find out who’s hand is in our pockets in this case, but trust me, it’s there.

#42 OwlEyes on 01.15.12 at 9:30 pm

You had me until the JSF comment. “Why should retired people be financing JSFs”? Ha! Maybe because they are the demographic excessively voting for governments likely to blow money on them? If they had voted for Doug Henning’s Natural Law Party and 7000 Yogic Flyers I would say fine, they’d get off the hook by doing daily Tai Chi for them. But conservative values and geopolitics cost money!

#43 Kurt on 01.15.12 at 9:33 pm

There’s an old joke that ends something like “then the parrot said ‘please sir, if you don’t mind, could you tell me what it is the turkey did?’”

What did Shawn Allen do?

#44 Nostradamus Le Mad Vlad on 01.15.12 at 9:33 pm

-
“It’s RRSP season, and you are prey.” — Meaning it’s Buzzard Fried Chicken with Oysters, Vultures and Clams for lunch, then tapioca with GoM oil mixed with soiled sea water and enchiladas for dessert.

“But times have changed, and now we have the TFSA.” — How much longer? If people with basic common sense (such as here) use Buffett’s advice to buy low (good penny stocks, sell ‘em when the reach $xx / share), most would be quite content.

Bob’s Yer Uncle put forth an interesting theory a few days ago, that we can bid adieu to the TFSA in a few years. What say ye? It’s a great investment vehicle.

To the best of my understanding and from what I’ve read over the last few years, RRSPs should be maxed out as early as possible to $300K with then monthly DRIPs during, TFSAs during and after.

If a couple lives well within their means, along with good tax strategies they should be able to have a minimum amount withdrawn to supplement their CPP / OAS.

“Why should retired people be financing F-35 Lightning II Joint Strike Fighters?” — Excellent question, and the answer is in lying politicos. ‘Nuf sed.
*
#221 GregW, Oakville on 01.15.12 at 12:19 pm — Hi Greg. Read a little.

My choice is to avoid vaccines completely, unless it’s absolutely necessary. Easier (for me) to go through a few weeks of inconvenience, than to have a doc inject me with a chemical mixture which my body may have a reaction to. Just my two cents worth, not for everyone.

#38 sam.i.am — Agreed. I have his site bookmarked and he has a good track record. I may not agree with everything he says, but that’s okay.
*
Homeless Teenage Girl Inspiring read, what she can do for her family; Financial Terrorism US ratings agencies cutting nine EU countries; JPM and Sacksfullagold Cashing out prior to hard times; BDI “The post-Christmas manufacturing slump is going to be a bad one!” wrh.com; 4Closure to Rental Another screwjob; Rumanians and Hungarians; 1:19 clip Banned Ron Paul commercial; Mitt Romney “N ONE SENTENCE: Millionaire Mitt Romney’s economic agenda is of, by, and for the wealthiest 1 Percent of Americans — period.”, and Bank support.
*
9:37 clip India and Biomedics. “If you don’t think that this is coming to the United States of Fascist America, think again.”; 21:12 clip What is SOPA, and why does Rupert Murdoch support it? The US govt. is trying to take down the ‘net; 3:24 clip Pizza as a veggie? Don’t laugh; The Shah of Iran Guess who is building nuke plants; A Tale Of Two Cities (8:43 clip — see head), and “. . . Obama is leading the pack in donations from the defense industry: according to the Center for Responsive Politics, he’d taken in almost $112,000 from defense industry donors through December 2011, . . .”; Processed Meats and Cancer There is a link; Shetland Islands Pair of ‘quakes; Iran IAEA and US war criminals.

#45 truth hammer on 01.15.12 at 9:33 pm

The pigs in the trough have no such worries.

http://www.vancouversun.com/business/pensions/5999490/story.html

The lie about the ‘average ‘ civic pension being 25K is exposed by showing how ‘averages’ are utilized to obfuscate the truth. BTW…..who doesn’t ‘care’ about seniors being raped by the CRA? One of the fastest growing issues most middle aged workers are now facing is their starving broke parents having to ask for support….sometimes through the courts.

#46 Cow Man on 01.15.12 at 9:45 pm

Amigos:

I used to be an Investors Group Rep. That is why I now own PWF.

#47 Brad on 01.15.12 at 9:52 pm

Hey Garth what is the best way to rescue money already trapped in a RRSP?

#48 Ogopogo (née Okanagan Renter) on 01.15.12 at 9:57 pm

Hallelujah! Thanks, Garth, for a most enlightening article. Appreciate the pellucid prose and de-mystifying logic. I’ve always been haunted by this specter in particular: “You’re merely gambling that some day, decades from now, you’ll be taxed at a lower rate.” Exactly! And yet you’ll never hear this perspective from mutual fund shills at the bank, much less from TNL@TB. Look forward to Part II.

On a most insignificant note and for what it’s worth, I hereby re-name my humble moniker ‘Ogopogo’, Lake Okanagan’s emasculated answer to the Loch Ness monster. Yea, for in the fullness of time this smug renter shall prowl the depths of K-town’s RE seeking to vultch and devour an underwater home.

Wouldn’t it be awkwardly ironic if DA ended up as my realtor?

#49 rower on 01.15.12 at 9:57 pm

Excellent post, Garth. Thanks for the information.

I can’t wait to read part deux tomorrow.

#50 DonDWest on 01.15.12 at 10:12 pm

#47 bob’s my uncle

Which will make TFSA’s infinitely more valuable as times go by. Anything that is only permitted to go on the market for a few years and then subsequently banned from further purchase makes it incredibly rare and valuable. And if we’re entering a Japanese styled depression, where cash is king and every asset goes down, TFSA’s may be the only asset going up in value. It’s also tax free to boot.

If people are putting their money in RRSP’s right now and haven’t yet maxed out their TFSA’s; they need to be smacked across the face.

#51 chubster on 01.15.12 at 10:16 pm

that does rock. now, why won’t you apply the same great analysis you do for households to sovereigns? kick the can does eventually run out of road. europe now, japan next up.

#52 DonDWest on 01.15.12 at 10:19 pm

#49 Brad

Sadly, the answer to that question is flipping a house.

#53 Canadian Watchdog on 01.15.12 at 10:20 pm

No disagreements on this post regarding RRSPs, however everyone should know that not funding your government will only result in them having to borrow more bonds, which in turn, they will pillage back from taxpayers later.

A few words:

The Canadian government is between a rock and hard place—their ability to fund long-term off-balance sheet liabilities (healthcare and pensions with an aging population) has become questionable. This poses a great risk to the Canadian dollar as the BoC will not tolerate further appreciation, rather its target is to devalue the CAN until exports are affordable to developing economies (BRICS). They really have no other choice. Understand that the global economy is much more competitive today as it was years ago, and with that comes another important component of investing your savings—what currency you are saving in.

Over the years there has been a lot of misconception about China’s policy towards pegging against the USD, but that is not the case anymore. China has become the new touchstone of what is known as the Asian Optimum Currency Region (or ORC), where other neighboring economies are slowly moving towards anchoring their currencies to the Renminbi (RMB). To analogize, think of a new blackhole emerging in space where its gravitation pull begins to lure nearby galaxies—that is the nature of OCR. As an addition for support, with the coordinated efforts amongst the BRICS nations—an Anti-USD stabilization mechanism was formed to support bilateral trade within the group members. China is at the center of it all. http://i40.tinypic.com/k2e5xt.png

From reading numerous Chinese reports and economic papers, China remains committed to appreciating the RMB at a rate of 4-6% per annum. The U.S. Treasury is pushing China into appreciating the RMB faster in order to give rise to domestic consumption— but China refuses—and will remain committed to its slow growth policy. Nobody can really say with great certainty how this will play out for Canada, US and Europe, but one thing is certain, China along with many other nations have given up on the dollar, this is a problem for us.

This isn’t investment advice (my disclaimer), but I would suggest those who seek a safe cash investment to look into allocating a portion of their savings in RMB accounts offered by The Bank of China at select Canadian branches. http://www.bankofchina.ca/portal/Info?id=633&lang=1&

Times have changed, think globally.

#54 timmy on 01.15.12 at 10:22 pm

“Why should retired people be financing F-35 Lightning II Joint Strike Fighters?”
Because most people were stupid enough to vote for Stephen Harper, the man who racked up the biggest deficit in history. Just wait for the cuts to the Feds…

#55 timmy on 01.15.12 at 10:32 pm

I’m priced out of the real estate market so I invest much of my money. The TSFA is a pittance. I’ll pay more on dividends for US stocks if I hold them outside my RRSP. I have 200K in my RRSP. If I stop contributing to the RRSP and invest in a non-registered account with CDN and US stocks, then I’ll get hammered with tax, no? What’s the alternative if I don’t want to buy into an apartment complex in Regina?

#56 Tony on 01.15.12 at 10:33 pm

I’d guess personal income taxes will be a lot less in the distant future in Canada. With taxes this high in this country there’s no incentive at all to work and that’s the problem with setting the personal tax rate too high. If you tax at the maximum rate you can always retire in a different province and pay less tax when you pull out money. The thing people should do is gamble 5 G’s a year with the TFSA and try to turn it into a couple of million dollars. That’s what i do.

#57 Tony on 01.15.12 at 10:47 pm

Re: #47 bob’s my uncle on 01.15.12 at 9:43 pm

About a 99.99 percent certainty. Obviously Nostradamus Le Mad Vlad never took basic math in school.

#58 DonDWest on 01.15.12 at 10:50 pm

#56

Timmy, too true, and on top of that most old people were cheering on the idea of acquiring F-35 Strike fighters. Pretty easy to cheer on the war mongering when you don’t have to fight in the wars. As far as I’m concerned, anyone who voted conservative as is of the age 50+ should pay 100% of the taxes involved in the acquisition of those jets.

#59 Mean Gene on 01.15.12 at 10:50 pm

%8 return, not too shabby, beats stinky old GICs, $5000 and you’re in like Flint.

http://www.centurionapartmentreit.com/

#60 Tony on 01.15.12 at 10:54 pm

Re: #37 Capital Loss on 01.15.12 at 9:14 pm

If you made losses trading futures and never declared losses yet you can make a one time declaration to treat the loss as an income loss. You’ll be committed and can’t change after that.

#61 Tony on 01.15.12 at 11:09 pm

Re: #18 MB on 01.15.12 at 8:01 pm

What the government presently has “take money out of an rrsp to buy a house” is just plain stupid and will likely be replaced with tax free loans and/ or a tax free grant or gift from the government about a couple of years after home prices collapse here in Canada.

#62 a prairie dawg on 01.15.12 at 11:09 pm

#36 bob’s my uncle

That might be a strategy, but it’s very risky. The last thing I (or anyone else in Canada) need right now is more exposure to real estate at the top of a bubble.

- — -

I can always draw them down partially each year after I quit working.

This would let my main source of retirement income grow some more until the rsp’s are chewed up.

Take some income from both sources yearly until the rsp’s are gone.

As long as they get drawn down before 65, it shouldn’t affect CPP and OAS, if both are applied for at that time. (provided they still exist then)

But I’ve never planned for the government to take care of me when I’m retired, nor my house to be my source of income at that time. Both are gambling.

It’s time to start thinking about a professional tax strategy. With free internet advice, you get what you pay for. lol

#63 Brew on 01.15.12 at 11:12 pm

#7 Randy
“Investigated working for a couple of Financial Services Companies and checked out their product offerings….then I remembered that I had a conscience and folded the deck to try something else….”

I too did that a number of years ago with Investors Group and during the second interview I was asked my thoughts on selling their various products. I said I would only recommend a product to someone that I myself would buy. I never got the third interview.

Brew

#64 That is a new one to me on 01.15.12 at 11:13 pm

hey #24 House, I’ve heard of the future value of money but not the future valve.

Can you help me by explaining the difference?

thx!
********************************
#24 House on 01.15.12 at 8:15 pm
Have you by any change ever heard of the Future Valve of Money?

#65 shanks on 01.15.12 at 11:15 pm

“That’s when we all get ponies.”

sounds like Garth has been listening to this lesser known US presidential candidate:
http://www.youtube.com/watch?feature=player_embedded&v=DFXXAuDK1Ao#t=94s

#66 Daniel on 01.15.12 at 11:17 pm

Conservatives won’t be getting rid of the TFSA, no government cares what the impact will be in 10 – 20 years. However, when a Liberal, or (I’m cringing) NDP government takes over, they’ll milk it, along with a small tax on everything in your RRSP.

#67 Capital Loss on 01.15.12 at 11:20 pm

#62 Tony on 01.15.12 at 10:54 pm

—————————————

Oh don’t worry. I’ve claimed all my capital losses for the last 15 years. One day my stock will come in and it will all be capital gain free!

#68 Devil's Advocate on 01.15.12 at 11:21 pm

#50 Ogopogo (née Okanagan Renter) on 01.15.12 at 9:57 pm

Wouldn’t it be awkwardly ironic if DA ended up as my realtor?

It’s a less than 1 in 800 probability.

#69 a prairie dawg on 01.15.12 at 11:22 pm

Now you’re waking the sleeping giant at IG?

You’re a glutton for punishment. ;)

#70 Snowboid on 01.15.12 at 11:40 pm

#60 DonDWest on 01.15.12 at 10:50 pm…

“most old people were cheering on the idea of acquiring F-35 Strike fighters. Pretty easy to cheer on the war mongering when you don’t have to fight in the wars”

Stereotype much?

The fighters are a political move, and if Canada goes ahead with the purchase it will be the biggest waste of taxpayers’ money since the used submarine fiasco.

Even the military down here isn’t that keen to replace the existing twin-engine fighters with single-engine F35s.

And BTW, if if Canada was ever in a real situation where our country was threatened I and most other seniors would do whatever they could to help protect it.

#71 Don in the east kootneys on 01.15.12 at 11:42 pm

#40 gordon pape –agree do opposite–

#58 Gamble 5 g’s with TFSA and turn into couple of million $$$$–agree but change gamble to Risk–

also an advantage to have the availability of lots RRSP at 55yrs old so you could retire early. Then withdraw RRSP yearly to bridge the $$ gap to 65. At that time RRIF and and receive CPP at 60early and OAS at 65- also work part time – in something you like-

#72 Cory on 01.15.12 at 11:43 pm

Banks, “Economists, Analysts, normal logical people are all saying the real estate market is highly overdone and on the way down. Obvious by the numbers. yet, building continues, and banks drop their 5 year rate to lowest level in history?? Why?? Only because of CMHC of course.

They want to look like they are being “prudent” in warning people about rral estate, but out the back door throw out a little more crack for one final HURRAH!!!!! by lowering rates even more.

They obviously know more mortgage changes are coming and the dealer wants to make some cash on one last fix for the addicted!!

Hard to believe.

#73 Fool in the GTA on 01.15.12 at 11:43 pm

Thanks for the blog entries as usual. Good stuff. I’m really looking forward to your analysis of REITS (both retail & commercial) considering your downbeat message on residential real estate.

#74 Kipper on 01.15.12 at 11:52 pm

So, should I use my RRSP or not? My TFSA is maxed out. Where should the rest of my savings go? Into my RRSP, or a non-registered account? I am in my late 20s and currently making around 60k. I save about $1500 a month and need to know where to put it.

#75 45north on 01.15.12 at 11:52 pm

Ogopogo (née Okanagan Renter): shouldn’t that be né Okanagan Renter?

#76 Devore on 01.15.12 at 11:52 pm

RRSP investors really are sitting ducks. US, a couple European countries and some others, have indicated they might closer regulate, and even mandate, the composition of registered accounts. Such as including long term government treasuries. For your own protection of course.

#77 nonplused on 01.15.12 at 11:56 pm

Garth, a little harsh tonight. Some people have no choice but to invest because it’s part of their benefit package. It’s free money you should take.

I agree TFSA’s are the better deal, but they are so small! What am I going to do with a $15,000 vehicle, except waste time? My NPV changes by more than that every second day! And you are wrong to think governments can’t turn them into TSA’s at some point. They track those too.

Turns out, you don’t have to invest your RRSP money in GIC’s. All my CEF is in there, and despite the big pull back in the last couple of months, it’s still a plus ten 10 years running. Self directed, baby!

You are of course right the tax burden upon withdrawal is a promise, and the only thing you should do when a government official promises you something is shoot him, but for now we are all pretending all is well. Trust me, Garth-man, when they come for the RRSP’s, CPP and OAS will be toast as well. They aren’t going to break just one promise. Nobody ever does.

#78 Junius on 01.16.12 at 12:09 am

My pet monkey, Junius Jr. suggests you visit http://www.yattermatters.com for reasons why Vancouver high end real estate prices are about to SCREAM HIGHER.

Read ‘em and weep boys.

#79 Devore on 01.16.12 at 12:10 am

#38 sam.i.am

I think everyone is welcome here, as long as they remain respectful of other posters, readers, and Garth, instead of being asshats.

#80 Bobby on 01.16.12 at 12:17 am

#60 DonWest
I cannot recall ever seeing a more naive comment than that. I think you should get out more.

The problem any government has is that if they mess with any retirement product they will suffer the wrath of the aged voter. Remember these people vote. Recall what Mulroney encountered when he wanted to chagrin the CPP, I think. He quickly reversed his decision.

Both the NDP and Liberals are going through a so called rejuvenation as they both seek a new leader. There hasn’t been a credible new idea from any of those groups. Sure tax the rich makes for lofty sound bites, but what is rich?

The only real solution is to take a really objective look at spending. We pump billions into a health care system but cannot tell if it makes any difference at all. Yet, if you ask any questions, the entitled left calls you a hard nosed Republican that will destroy everything Canadians hold dear.

I suspect the Conservatives will be in power for a very long time as the left fumbles and tries to decide what it stands for. This will be much like the three majorities the Libs got as the right was in disarray.

Hopefully we will see some common sense.

#81 Devore on 01.16.12 at 12:20 am

#55 Canadian Watchdog

No disagreements on this post regarding RRSPs, however everyone should know that not funding your government will only result in them having to borrow more bonds, which in turn, they will pillage back from taxpayers later.

No one, I think, is advocating tax evasion, merely tax avoidance. If the government does not have enough revenue, they must raise taxes, not count on absentminded, lazy, uninformed, or generous citizens to close the gap.

It is your duty as a citizen to minimize the taxes you pay. This keeps the government honest.

#82 Waterloo Resident on 01.16.12 at 12:23 am

“Freedom 55″: forget it, more like “Freedom 155″ these days.

You know why I think that home prices in Canada will never fall by much more than 5 or 10%? It because of people like #18 MB, where he said this:

(“Fantastic topic Garth. Would you recommend a late 20-something with little savings so far (just re-entering the workforce after upgrading education) to use a RRSP to save for a home purchase when I’m older and home prices come back down to earth?”)

See what I mean, he’s just ITCHING TO INVEST IN HOMES !!! Even if homes drop 2%, masses of investors like him will jump into the market and push things up 20% in just a matter of minutes.

No, the ONLY thing that will keep these guys away from buying homes is when rates finally DO rise (and who knows ‘when’ this will be), only then will the higher rates make it literally impossible for them to afford the higher monthly payments. Sorry for the bad news but I’m just calling it as I see it.

—————————

I was going to be like all those other MORONS and say “FIRST” , or “LAST”, or something like that, then I thought to myself ‘what’s the point?’, so forget it, just smile and enjoy life without the crap.

Take care and have a nice day !!!

#83 The Thing in the Basement on 01.16.12 at 12:28 am

76 Kipper – great job on the saving. Maybe so good you
will fall into the trap of a similar income bracket in
retirement as when working. Here is a tax rate calculator.

http://www.walterharder.ca/MarginalTaxRateCalculator.asp

In BC the marginal rate increases from about 23% to 30% just above 40k/yr, then increases quickly above $73k/yr. If you think your earnings may increase
substantially in the future, you could hold off on RRSP
until then and make some larger contributions at that time. All my contributions are from higher earning
years.

#84 Ron@Delta on 01.16.12 at 12:40 am

#25a prairie dawg on 01.15.12 at 8:21 pm

Thanks for the tips. My tax returns usually mean I owe the CRA, so I put enough into RRSPs in the last few years to not owe or receive a refunds. With Garth’s advice, I’m wondering if and how to bail out of RRSPs.

#85 Honus Wagner on 01.16.12 at 12:45 am

@#56 Timmy: ‘Most’ people did not vote for Harper, or at least that is the way I interpret the fractions.

I don’t quite follow why RRSPs are so evil. Sure you eventually take the distributions as income, but presumably by then you’ve converted holdings to things that would pay interest for you to live on. Assuming one has other savings held outside an RRSP, one can take those distributions as dividends or capital gains. IMHO it’s about putting the right investments in the right account at the right time. The argument about being pushed into a higher tax bracket is weak, I think, since our tax rates are progressive as one moves up the income ladder. It’s one of the nicer problems to have.

#86 Canadian Watchdog on 01.16.12 at 1:00 am

#83 Devore

Inflation is a hidden tax and when you’re RRSP is locked in a depreciating currency, it’ll buy much less decades down the road. Carney’s job is to peg the CAN/USD at all costs, so if the US goes down, we go down. The real illusion is that CAN is a strong currency.

—————————————

Reminder tomorrow is CREA’s report. If those stats come in bearish along with the next two weeks of negative earnings, foreigners will be dumping REITs across the board.

No pressure Garth.

#87 CoreyMC on 01.16.12 at 1:19 am

Have a look at this video and tell me what you thinkhttp://www.bloomberg.com/video/84149080/

#88 TaxHaven on 01.16.12 at 1:44 am

RRSPs and TFSAs are irrelevent to those of us in the “not currently working” category. A category that seems to be getting bigger and bigger lately.

It’s about time people realized that fewer and fewer people work for the standard “company” anymore.

How about some speculative investment opportunities that aren’t built around minimizing taxes on income?

#89 Nostradamus Le Mad Vlad on 01.16.12 at 1:45 am

-
Funnies One-liners. I include #59 Tony as well.
*
Iranian currency slides; 8:06 clip Taking control of our money; WH taking a stronger stance against 4closures? Goes against yesterday’s link which said 4closures would increase by 25% in 2012; 1:52 clip A Twinkie costs less than a bunch of carrots? Japan to rebuild industrial complex to southern India; Merkel in overdrive (for the NWO), but the NWO may never happen; Cdn. DebtJust in case you’ve forgotten, we’re up to our necks in alligators.

Turning a side job into full employment and Speaking of retirements, what makes them grow; China Is it #1? Linn Energy; Consider Last Year’s models; Greece We need a week or so to wake up; Japan Doubling sales tax? Merkel again, and Withering EU; 13 Market Gurus Friday 13th just happened, France was downgraded, the Italian liner sant — this is becoming one doozy of a year; It’s Idiot Season!
*
Splashdown! Russia’s spacecraft touches down in an ocean somewhere; Fukushima Diary update on Reactor Two, and Fukushima #2 Concerns Cdns.; Russia repeats warning, and Iran warns Gulf states not to make up oil shortfall; Loggerheads CIA – Mossad; Lieberman’s bill starts internment camps; Apple Juice Not made where you think it is; CC Messing Alaska up; Phony Tony Inside Blair’s world; Regime Change Actually, the cycles are changing.

0:30 clip Oh the irony of it all. The Italian ship sank on the 100th anniversary of the Titanic’s sinking; History Lesson Hungary and China; Florida Link in. For profit prisons. Isn’t that Herr Harper wants? Rationalizing Murder Syria, Libya, Iraq, AfPak etc.; Iran War Hype driving up world prices, so Our Money is headed to Libya to support the neocons; Conflicts World map of wars.

#90 truth hammer on 01.16.12 at 2:00 am

Tony #58 …So you’ve hit the nail on the head and now understand why most professionals no longer work a five day week….most are down to three. There is no incentive to work with rates at 50% and indirect taxation sucking up another 35%. I am one of these. I simply leave the country and spend the six winter months in an enviornment where it costs 1/4 of what it costs to live in Canada and save the disposable income by not paying for the highly taxed COL in Canada…….sunshine and money……good plan eh?

No matter how many hours you and your spouse may work you simply cannot beat the taxman…example….if you both make 100K p/a…one entire income 100K goes directly to the tax man………and the indirect taxes on levies , prop tax….gas tax..tax on tax etc etc …( you know all this) gets chopped off the remaining income. You end up with 50 G’s of disposable income on a 200K salary and both your and your wife are near dead from working the hours. But wait…theres more….you’ve got two kids…you bought into a tony area and have to put them in private schools so as to keep up appearances…..there goes 30K……..well …..after two leased cars……macaroni……parking downtown and the never ending soup pot…you’ve got a family earning 200 K…..and living on fumes and big credit to keep up appearances and golf memberships…

BWahahahahahahahahaha…Canada sucks….get out while you can….. even marginally…you should stop participating in the tax scheme………take the time off instead of lavishing undeserved revenue on the CRA….you’ll have a better life and be in the same position at the end of the day…..sounds counter intuitive…but….do the math…more people are refreshing the batteries in their calculators…just like I did.

BTW its 126 degrees warmer where I am than it is in Calgary today…just came up from the pool and am heading out for a nice lunch with my very happy wife…..go figure.

#91 villain? on 01.16.12 at 2:06 am

And yet many believe that things are getting better…
On Friday, shortly after the U.S. financial markets closed, Standard & Poor’s unleashed a barrage of credit downgrades for nine European nations.

• France – downgraded from AAA to AA+
• Austria – downgraded from AAA to AA+
• Italy – downgraded two more levels from A to BBB+
• Spain – downgraded two more levels
• Portugal – downgraded two more levels
• Cyprus – downgraded two more levels
• Malta – downgraded one level
• Slovakia – downgraded one level
• Slovenia – downgraded one level

This is really bad news for anyone that was hoping that things in Europe would start to get better.

Maybe Canada could just lower their interest rates some more????

#92 aaci-home dog on 01.16.12 at 2:16 am

Ugh…spider..thingy

#93 Aussie Roy on 01.16.12 at 2:27 am

Aussie Update

Do we have a housing shortage ?

MUM and dad investors could be feeling the financial squeeze, thanks to a glut of rental homes in the west.

Many people who put their savings (DEBT) into new houses in suburbs including Tarneit, Wyndham Vale and Truganina have their investments sitting empty.

Almost 1000 new houses are being advertised for rent.

http://www.heraldsun.com.au/news/more-news/landlords-feeling-the-pinch/story-fn7x8me2-1226243996889

Banks pull the plug on the outer suburbs.

http://nfbpsh.blogspot.com/2012/01/australian-banks-pulling-plug-on.html

Taking the Aussie banks to court

”The people we are talking about are experiencing severe financial hardship through no fault of their own because they shouldn’t have been given a home loan in the first place or they have been lent way too much money,” Mr Brown told The Sunday Age. ”I think the banks have a case to answer for the irresponsible way they have been lending.”

http://www.theage.com.au/business/banks-face-home-loan-suit-20120114-1q0pt.html#ixzz1jbAu3est

NSW and Queensland are slipping behind in tax competitiveness as they also spearhead a borrowing spree that will see state debt blow out more than 40 per cent by mid-2015.

http://www.theaustralian.com.au/national-affairs/state-politics/state-debt-blows-out-40-per-cent-as-borrowing-spree-comes-under-fire/story-e6frgczx-1226244932453

THE suburban shopping strip is on its knees, with small shopkeepers in once heaving streets across Sydney dying a slow painful death.

While the retail downturn has hit big retailers and smaller outlets in suburban malls, the once thriving shops on main streets throughout our suburbs have been devastated.

http://www.dailytelegraph.com.au/news/sydneys-suburban-shopping-strips-are-on-their-knees-as-retailers-close-their-doors-in-the-downturn/story-e6freuy9-1226238995293

#94 Trailer Park Boys on 01.16.12 at 2:32 am

Yo Garth:

Where did you get the foto of Greek Wonderwoman.

If you tell us …..we’ll Ottograph a “permanently borrowed” shopping kart.

#95 NoName on 01.16.12 at 2:43 am

For family where spouse is not working (no income at all) contributing in spousal rrsp is probably good, contributing spouse gets tax rebate and not working spouse takes money out 3 yrs later – withholding 20% which it will be given back on tax time assuming that withdrawal is smaller than portion of income that is not taxable. Only bad thing with this is if you start now first withdrawal is 3 yrs from now and recommended is to use 3 offering rrsp accounts. But if spouse is not working anyway why not.

#96 mad vancouver on 01.16.12 at 2:46 am

Larry is predicting some massive wave of HAM coming to our shore next week. Pretty hot debate at the moment in Vancouver. A mix of hope and fear.

#97 Blacksheep on 01.16.12 at 2:49 am

chubster # 53

“why won’t you apply the same great analysis
you do for households to sovereigns?”
———————————–
Because a sovereign, whom controls their own currency, has nothing in common with a constrained, house hold.
Weak growth going forward, is what’s getting us in trouble now.

Search: MMT for more info.

Take care,
Blacksheep

#98 Don on 01.16.12 at 2:52 am

Investors Friend was rude to the blog.

And Garth made a point. Man up. Wish the remainder of our politicians would do the same for Canadians.

#99 Hicksville Alberta on 01.16.12 at 4:06 am

Advising on RRSP’s isn’t a one fits all thing.

I have used a self administered plan that was 100% invested in gold shares till 2006 then switched to 100% in Central Fund of Canada which only holds physical precious metals and this has served well and i expect it to continue that way till governments (if ever) start being responsible and accountable to their electorate.

I only purchased these against high rate taxable income.

Spousal RRSP’s have a place in allowing income splitting where appropriate. ( I had a spousal that went to my EX and she has been able to draw it down at very low average rates as needed and i am happy for her.)

In addition one consideration that never seems to be discussed is what happens when one is in high or good earning years then loses their employment or gets downsized in to lower income. Purchasing (self administered) RRSP’s in high(er) income earning years allows for some insurance value by stacking these savings or tax deferrals for future drawdown in the event one’s earnings go down in future years.

The employer matching programs are more of an incentive than anything for consideration but one needs to look at what flexibility the employer allows one to invest in.

I know of several smaller oilfield servicing companies that allow the match into self administered plans so that is good flexibility.

These things can work out well and allow for early retirement or for a more comfortable or “safe” retirement in the traditional post 65 age and up years.

For the most part i would never ever ever purchase a plan operated by any bank, insurance company, or financial institution period. Those guys are part of the problem and certainly not part of your solution.

TFSA’s appear good in principle and some may have done well with these but the aggregate amount you can invest in these to date ain’t much yet but i would consider these as an ancilliary or supplemental type investment.

One of my youngest sons has had his first real high(er) earning year this year so i will help him set up a self administered plan this year.

#100 new-era on 01.16.12 at 4:38 am

Property taxes arriving soon
Just how does buy cost less when last years property taxes equates to 3 months rent. This year the property taxes goes up.

Stats for 2010 property taxes.

http://www.vancouversun.com/news/property-taxes.html

Expect a huge increase this year especially when the 2.2 to 4 percent increase + higher assessment cost kicks in.

#101 debtified on 01.16.12 at 5:42 am

Garth, are there any merits at all in contributing to the RRSP for future use as a downpayment for a house purchase? I have a feeling that the maximum limit will either be increased or eliminated altogether. To me, it’s like adding 40% to my downpayment which saves me money on interests payments.

I know you’d have to contribute all the money back but I’m sure you’re not advocating no to RRSP altogether – some investments sitting in RRSP, after all other avenues (i.e. TFSA) are maxed out, is not that bad.

Lastly, how about if one plans to semi-retire early (say @ 45)? Keep a part-time consulting job for supplemental income while focusing on the better part of living. Could this be a valid tax avoidance strategy?

Looking forward to part two…

***********************************************

#38, 39, 44 RE: Investors “Friend”

The time wasted reading or avoiding his entries are better spent on other people’s more helpful entries (including the jokers’). There’s just not enough time for all entries so the less clutter, the better. He can also be dangerous to the gullible.

#102 GregW, Oakville on 01.16.12 at 8:14 am

Hi Nastra, re: illusion and ponies
I guess we can thank H for bring this to Canada!

Recipe for Vote Fraud: Global Internet Voting Firm Buys U.S. Election Results Reporting Firm
“With SCYTL internet voting, there will be no ballots. No physical evidence. No chain of custody. No way for the public to authenticate who actually cast the votes, chain of custody, or the count.
SCYTL is moving into or already running elections in: the United Kingdom, France, Canada, Norway, Switzerland, United Arab Emirates, South Africa, India and Australia.”
http://www.infowars.com/recipe-for-vote-fraud-global-internet-voting-firm-buys-u-s-election-results-reporting-firm/

Proof of voter fraud in the USA – from the horse’s mouth 9min
http://www.youtube.com/watch?v=mq9WVuKGwOM

Re: ponies
I’m surprised some comedy or media talented students haven’t had a field day with these commercials that including ponies yet? Instead of the kids being sheep they could be wolves! Armed too, maybe?
A good swift kick or punch to the guys… for ripping them off. (Not for real, just dark humor stuff, like the three stooges or the road runner.) Just imagine what funny skits could be produced.

#103 MoneyAndWealth on 01.16.12 at 8:28 am

Garth: I see my RRSP as unemployment insurance.

If for whatever reason I lose my job throughout my life and can’t find a new one for a long time, I can always draw down from my RRSP at a lower marginal tax rate. This is an efficient way to extract money out of your RRSP and provides you with funds in when you need it.

The tax bomb when I retire is a concern, but if you properly build your TFSA over the course of your life (starting at age 18) you can use the cash flow from there to fund your retirement essentially tax free. Withdrawing from your RRSP under that strategy will likely be at a considerably lower marginal tax rate.

#104 pbrasseur on 01.16.12 at 8:44 am

Very interesting, thanks for this one Garth.

I’ve been wondering for some time about my RRSP, not sure if it make sense to max it, given the fact that it becomes money under governement control. They could tax it 100% if they wanted to. Most of my money is out of RRSP but still I wonder.

Mind you they can tax pretty much anything you own. To me that’s the main problem with these social democraties, they have way too much power and they use it to kill ecomonic freedom (and in the end possibly freedom period).

Anyways, looking forward to tommorrow’s part two…

#105 Sky on 01.16.12 at 8:54 am

The various tax deferral schemes are a bureaucrat’s/accountant’s/financial industry dream. And a paperwork/ tracking system nightmare for the peons. As intended.

All this crap could all be avoided if we lived in a sane world with a fair flat tax.

But we don’t live in a sane world. We live in the Hotel California where you can ” checkout anytime you like, but you can never leave.”

” Mirrors on the ceiling, the pink champagne on ice
And she said, ” We are all just prisoners here of our
own device.”
And in the master’s chambers they gathered for the
feast
They stab it with their steely knives but they just
can’t kill the beast.

Last thing I remember, I was running for the door
I had to find the passage back to the place I was
before.
” Relax,” said the nightman, ” We are programmed
to receive.
You can checkout anytime you like. But you can never
leave.”

DonDWest : Refresh my memory please. What part of the Hotel California do you live in ?

#106 truth hammer on 01.16.12 at 9:13 am

Biggest US housing blog ‘Dr Housing Bubble’ sets his sights on Canada.

http://www.doctorhousingbubble.com/canada-housing-bubble-ripe-for-popping-vancouver-housing-bubble-2012-pop-real-estate-canada/

Says its a big bad bubble ripe for a burst….explains why.

#107 TurnerNation on 01.16.12 at 9:33 am

At my workplace we contribute max. 6% of our GROSS pay, and company matches 3% of gross pay. I take full advantage. It’s held via Manulife and we select a limited number of mutual funds online.

I rotate mine using Money Market, Monthly High Income (follows TSX), and PH&N Bond funds.

My return since inception (3 yrs) is about 6%.

#108 TurnerNation on 01.16.12 at 9:43 am

#82Bobby on 01.16.12 at 12:17 am

“Hopefully we will see some common sense.”

You’ve got your wish – we’ve had years now of conservative rule. Is the country better off now? Are you?
Or are you still hoping someone will save you as you sit passively?

#109 TurnerNation on 01.16.12 at 9:52 am

Oh here it is, 6% it is :-)

These rates of return show the net performance of your plan as of December 31, 2011.

Since January 1, 2011 1.9%
For the past 3 years * 6.0%
Since October 17, 2008 * 6.0%

* Annual compound rate of return.

#110 Tom from Mississauga on 01.16.12 at 9:52 am

RRSP’s are best for low income earners? Is that a typo?

#111 eaglebay - Parksville on 01.16.12 at 10:03 am

#93 villain? on 01.16.12 at 2:06 am
“And yet many believe that things are getting better…
On Friday, shortly after the U.S. financial markets closed, Standard & Poor’s unleashed a barrage of credit downgrades for nine European nations.”
———-
So what? What’s the big deal?
S&P also rated the US subprime mortgage derivatives as triple AAAs.
Meaningless bull already factored in the markets.
Watch BNN much?

#112 detalumis on 01.16.12 at 10:06 am

The good old F135 argument, you know that cancelling all fighter jets won’t pay the bill for one years OAS/GIS. Nobody can make future investment decisions today based on any current tax laws. Spousal RRSP’s became toast when pension splitting came on board. Does anybody seriously think that TFSA money will never, ever be considered an asset or income when it comes to receiving say OAS/GIS and such, I seriously don’t think so. Do you think that governments that need to fund health care which is going to swallow up oh 70% of all provincial revenue in 10 years won’t be looking at raising the taxes on other stuff like dividends and capital gains and such. They will be fricking looking for quarters under every cushion.

For every 71 year old who never spent a dime and now quelle horreur, has too much money and has to pay that nasty thing called tax, there is someone like me 20 years younger who finds their decent paying job has just flown away to India, for every person like me you will find an RRSP that works exactly as it was intended and in my circle of friends there are quite a few just like myself.

#113 Daisy Mae on 01.16.12 at 10:18 am

timmy on 01.15.12 at 10:22 pm
“Why should retired people be financing F-35 Lightning II Joint Strike Fighters?”
“Because most people were stupid enough to vote for Stephen Harper, the man who racked up the biggest deficit in history. Just wait for the cuts to the Feds…”

*****************************

A 38% ‘majority’ is laughable.

#114 Devil's Advocate on 01.16.12 at 10:24 am

#92truth hammer on 01.16.12 at 2:00 am
Tony #58 …So you’ve hit the nail on the head and now understand why most professionals no longer work a five day week….most are down to three. There is no incentive to work with rates at 50% and indirect taxation sucking up another 35%. I am one of these. I simply leave the country and spend the six winter months in an enviornment where it costs 1/4 of what it costs to live in Canada and save the disposable income by not paying for the highly taxed COL in Canada…….sunshine and money……good plan eh?…

Exactly!

#115 Ret on 01.16.12 at 10:25 am

RRSP’s are for rich people who do not have government pensions like doctors, lawyers, dentists etc.

They get huge tax savings when working and then cash out in retirement paying a very low rate on their first $40,000 each year.

For the rest of us, when the government encourages us to use RRSP’s, you have to question their true agenda.

Any left leaning govenrment will find your RRSP savings too hard to resist.

#116 Daisy Mae on 01.16.12 at 10:35 am

a prairie dawg on 01.15.12 at 11:22 pm
“Now you’re waking the sleeping giant at IG?

You’re a glutton for punishment. ;)”

********************************

All I received from Investors Group was bad advice, bad returns and huge losses….so they deserve whatever is coming their way.

#117 Ron Burgundy on 01.16.12 at 10:40 am

Although the Government doesn’t tax a TFSA withdrawal, it would appear as though the banks apply their own taxes. In an effort to add yet another revenue stream, the banks have levied a fee on the withdrawal of funds from my TFSA…..

Full de-registration of plan $125.00
Partial de-registration $25.00 each

Apparently they consider transfering from my TFSA to my chequing account a partial or full de-registration….

Garth, What gives??

Is this how you drew it up in Parliament a few years ago?

#118 Fat Charlie on 01.16.12 at 10:53 am

Interesting post…

I have been leary of RRSPs since the late 90s…but I thought I was just paranoid…apparently I found my ilk!

Some rants in favor of RRSPs:
1) Most Young Canadians (past me included) have no strategy to save. RRSPs are a smoke and mirrors encouragement to do so. I could have spent more on hookers and blow, but instead I opted for the “free money now”…to my benefit.

2) If your “free money” is used for the powers of good (debt pay down, student loans etc) vs evil (big TVs, big fake boobies), it’s a unique opportunity to get yourself ahead.

3) The death of the defined benefit plan and brilliant transition (from an employer standpoint) to the defined contribution plan have forced us into RRSPs. Free money is free money. Oddly, they have also used up some of the RRSP room, so you SHOULD have more money to invest outside of RRSP (henceforth my reading of this blog)

4) At some point in life, you no longer need to utilize RRSPs (outside of the free money from your boss). I hit that point 3 years ago as I married a smart chick who is waaay out of my league (keep away Garth!) and makes bucket fulls of money.

I am very curious (but not bi-curious) about tomorrows post. I proved I can save, but now what? Should I have a pre-retirement strategy to “cash out” RRSPs?

#119 T.O. guy blazin' Kush on 01.16.12 at 11:42 am

I don’t even have an RRSP. TFSA only for me. Does that mean I’m safe?

#120 RRSPtoDRIPtoTFSA on 01.16.12 at 11:53 am

To calculate the breakeven time for a rrsp withdrawal is an exponential function of the difference of before and after retirement tax rates, the american association of individual investors had that years ago but is now confounded by other taxes. I found about 7 years was that point so do not contribute close to retirement!
also you are gambling that you will live longer as money remaining goes to spouse is it max taxed to government on death.
Get the money out slowly and earlier than 18 years which is the average life expectancy from 65.

I have a small pension and rrsp is a tax burden.

an account has being saying the same thing with a book called Smoke and Mirrors. Do not over contribute.
http://www.trahair.com/
Garth is better from what I have read.

It is better to buy stock in Investors group. I saw the sheeple signing up at one meeting and realized this.
I could not believe everyone except me signed up, people would not talk to me about it. Would you sign into a locked contract all in favor on the company?
It is just as bad as the real estate scam with the highest commission rates in the world preying on the stupidest people on the planet.

Investment advisers are under educated and look at the CFA Shawn Allen someone who’s investment letter I tried and is not worth it in my opinion. No wonder he is cut off from comments.
Learning is a personal responsibility not something to pawn off on someone else for a fee.
A fool and his money are soon parted.

#121 Junius on 01.16.12 at 11:59 am

#80 Junius post,

Thanks BPOE. I guess that monkey comment struck a bit close to home. Cameron Muir plays the accordion while you fill the jar with change?

You really must be struggling if you need to impersonate me.

#122 Van guy on 01.16.12 at 11:59 am

#98 mad vancouver on 01.16.12 at 2:46 am
Larry is predicting some massive wave of HAM coming to our shore next week. Pretty hot debate at the moment in Vancouver. A mix of hope and fear.
———————————————————–

Larry Yatkowsky?? Of course he lies, he’s a realtor. A realtor with one listing is dying for business. What is he suppose to say? Is he suppose to tell everyone to talk to Garth?

#123 Canuck Abroad on 01.16.12 at 12:01 pm

Garth, I hear where you’re coming from but aren’t you ignoring the fact that $1 today is worth a lot more than $1 in a couple decades due to inflation and compounding. So if you are able to defer your taxes for a couple of decades isn’t the RRSP still useful?

Agree with you that TFSA is better, but it is also relatively new and so was not an option until recently. So people should invest in the TFSA first, but if they have money in an RRSP already, probably not sweat it too much because they are still getting possibly decades of tax deferral as well as tax free capital growth while the funds are inside the vehicle. I think the key then is to maybe time your withdrawals to when you are not going to be in a high tax bracket.

Also, if you retire in a no/low tax country (say Ecuador or similar) and the RRSP is your only Canadian income, you could possibly have a very low tax bill unaffected by any other income generated in the other country, no?

#124 Daisy Mae on 01.16.12 at 12:03 pm

Oops! Forgot to mention the exhorbitant costs associated with Investors Groups’ poor service and performance….

#125 Kaitain on 01.16.12 at 12:06 pm

Garth, the argument about RRSPs being taxed more than CGT is fallacious.

When you invest money outside of an RRSP, it’s taxed TWICE: firstly your $1000 of income is taxed as income (let’s say this is 30%), and then later your $700 of investment is taxed with CGT when you sell it. Say it doubles, and CGT is 15% for you. You’ll end up with $700 + ($700 * 0.85) = $1295.

In an RRSP, your $1000 goes straight into the investment with no initial income tax. Then it doubles. Then no CGT is applied, but it’s taxed as income when you pull it out (at 30%, or possibly less if you’re withdrawing later in life, but let’s say 30%).

You end up with $1000 * 0.7 = $1400.

Of course, this ignores inflation, but that’s part of “capital gains” anyway.

The RRSP path is the better one.

#126 househornyhousewife on 01.16.12 at 12:06 pm

Garth,

You disappoint me. Some of the comments you made today will undoubtedly confuse many.

The way you put it, you sound like you are saying that RRSP moneys are being taxed twice when obviously they are not. I realize you are not actually saying they are taxed twice but some will misinterpret your message to mean this. RRSP income is taxed ONCE but at a later date. This is indeed tax deferral and the reason you say that it is not tax deferral completely behooves me. Granted you will probably be paying at a higher tax rate since tax rates don’t go down but up over time. But you will definitely be paying these taxes later, when you withdraw the money and this is called tax deferral.

Your brilliant scheme of borrowing money in order to invest and then getting to “deduct” the interest on the loan from your taxes is quite something. The last time you mentioned this, I did some research and discovered that you have to be extremely careful and follow certain rules to the letter or find a tax auditor’s rubber glove up your keyster. I won’t go into the sordid details but suffice it to say that it is a bit complex and not for everyone. In addition, you are still paying interest to the bank or whomever on this business loan. Sure it is tax deductible against the business income earned (did you get that ? if your investment doesn’t earn any income then the loan is NOT tax deductible at all), and you get a portion of it back this way (depending on your income tax bracket) but you are still paying money to borrow funds so some of it ends up gone .. this will reduce the return you make on your investment. Whether they end up paying money to a bank or to the government matters little to most.

There are two things in life which are certain, death and taxes. If you make income, you MUST pay taxes, that’s a fact. Yes you can reduce your tax burden by choosing the type of income you earn, since different types of income are taxed at different rates. However, each type of income comes with its own set of pros and cons. You can also defer payment of your taxes to a future date and if you organize things well, you will manage to minimize your tax burden over your lifetime.

HOWEVER, I do not think it is wise to advise a general crowd such as the one on this blog by saying that one thing is really stupid to do and another really smart. Each person has a different threshold and tolerance for risk and complexity. Some of us don’t like taking risk and others hate having to constantly fill out forms and keep up on the latest tax laws in order to save what often amounts to a few bucks (when you factor in the accountants and financial people .. not to mention the headache). Some things are worth doing and others aren’t.

Yes TFSA’s are a great thing and for now, the income in these accounts is tax exempt, yippee. However, the money you put into these accounts has already been taxed and it is only the income earned on these accounts that is tax exempt. Don’t get me wrong, if we were allowed to put more into these accounts, I would. Undoubtedly, these are a good idea. But 10 grand a year won’t enable me to retire in comfort, even with the compounded interest, that’s for sure. RRSP’s are also not the monster you make them out to be. If someone decides to make an RRSP contribution and then insert the refund they receive into a TFSA, I would definitely not say they are stupid.

I agree in doing what you can to reduce your tax burden but jumping through hoops and going in for complicated schemes to try to “outsmart” the government will complicate your life for nothing. The KISS principle is always sound in my book.

HHHW

#127 Kaitain on 01.16.12 at 12:09 pm

Erratum:

You end up with $1000 * 2 * 0.7 = $1400

#128 Junius on 01.16.12 at 12:14 pm

BPOE,

So a realtor in Vancouver posts that planeloads of HAM are coming to Canada and this is a credible source? You are really incredible. Even, EVEN if it is true it would be proof again that this is just more dirty money fleeing China. List now and sell your house if you want to sell to these thieves but don’t buy a home expecting this will continue.

See article below where $120 Billion has been taken from China by corrpt officials.

http://www.time.com/time/world/article/0,8599,2079756,00.html

#129 EdmontonJim on 01.16.12 at 12:17 pm

Lemme see if I can guess the four reasons;

1. Company matches – A companies cop-out of a pension but its better than nothing.
2. Plan on retiring in a different province with a lower tax rate.
3. Holding your own mortgage – Garth’s mentioned this, but I don’t really understand it.
4. Golden years. If there are afew years in your carrier where you are making an insane amount of money, (like doing time in Fort McMurray) you can spare some of that windfall from the highest tax bracket.

Am I right? Did I miss anything?

#130 disciple on 01.16.12 at 12:28 pm

#83 Devore on 01.16.12 at 12:20 am… “It is your duty as a citizen to minimize the taxes you pay. This keeps the government honest.”

Please let me know when you find an honest government. I will bring my internet journalist gear and snap some pictures. And oh yeah, there is not a shred of difference between evade and avoid. But thanks for the laugh.

#131 Living in AB on 01.16.12 at 12:34 pm

So as many from my generation I took the old First Home Buyers RRSP wirthdrawal. SHould i Replenish this baby or pay the taxes?

#132 chubster on 01.16.12 at 12:38 pm

@blacksheep #99

re: “why won’t you apply the same great analysis
you do for households to sovereigns?”
———————————–
Because a sovereign, whom controls their own currency, has nothing in common with a constrained, house hold.
Weak growth going forward, is what’s getting us in trouble now.
*******
disagree. ability to print currency = ability to kick the can. ultimately, they are constrained and this only sets up a greater eventual crisis by nurturing what should be liquidated. in the end mises/hayek are right. the mantra that growth can save you is kick the can propaganda. sovereigns are consumers of wealth, not creators. eu has run out of road to kick the can, japan next, then usa. sovereigns are worse offenders than households. they’re spending someone else’s money; so they should in fact be held to a higher standard. applying garth’s logic for households to sovereigns is the small govt message.

#133 Ralph Cramdown on 01.16.12 at 12:41 pm

People, the Future Valve of Money is for inflation.

#134 live within your means on 01.16.12 at 12:44 pm

#118 Daisy Mae on 01.16.12 at 10:35 am
a prairie dawg on 01.15.12 at 11:22 pm
“Now you’re waking the sleeping giant at IG?

You’re a glutton for punishment. ;)”

********************************

All I received from Investors Group was bad advice, bad returns and huge losses….so they deserve whatever is coming their way.

………………….

Same with Manulife.

#135 jess on 01.16.12 at 12:45 pm

mockery

2010: Citizens United

In 2008, a conservative non-profit organization called Citizens United produced an activist video,“Hillary: The Movie,” — which was scheduled to air on cable TV during the democratic primaries — was banned on account of the McCain-Feingold Act, which barred political advertising paid for by either unions or and corporations in the final 30 days of election campaigns. The case made it all the way to the Supreme Court. In a landmark 5-4 decision, the court ruled that the First Amendment prohibits government from limiting corporate political spending, overturning parts of the McCain-Feingold Act and paving the way for unrestricted corporate spending on elections.

=============
PAC System divine comedy
What Matters Today
January 13, 2012
Present at the Creation: The Colbert Candidacy
by Michael Winship
We were fortunate to be in the green room with Bill at The Colbert Report just before his appearance on the show Tuesday night. Stephen tipped us off to the brilliant plan announced Thursday evening — that he would be trying to run as a presidential candidate in the South Carolina primary on January 21 — or, as he put it, creating an “exploratory committee to lay the groundwork for my possible candidacy for the president of the United States of South Carolina.”
http://billmoyers.com/2012/01/13/present-at-the-creation-the-colbert-candidacy/
http://billmoyers.com/content/the-triggers-of-economic-inequality/

#136 disciple on 01.16.12 at 12:56 pm

The “business” of sports, like pop culture, is mind control. Here is the Big Aristotle showing off his Ring of Freemasonry.

http://www.youtube.com/watch?v=x7qoxchAgw4&feature=youtu.be

Eat the apple eat the core – origin of the meaning of hardcore. 1 million plus INNOCENT people killed. And now they want Iran.

http://www.youtube.com/watch?v=B6hp8HMstkE&feature=youtu.be

What will you do? Vote? Might as well dig your own graves… There’s more than your retirement nest egg at stake, people. The future of human dignity, for starters.

#137 I'm stupid on 01.16.12 at 1:00 pm

#45 Nostradamus Le Mad Vlad on 01.15.12 at 9:33 pm
And #38 Sam I Am

I have a 1000% yearly return on my portfolio. Maybe you can subscribe to a website I will set up to fool others into believing it is actually true. Shawn Allan is like the guys who say they can pick sports winners, he shows you past performances never future ones until you pay. How can I be sure his investments actually preformed what he claims? I know for a fact bac increased in value in the past month since that was the past.

I’m stupid, but not stupid enough to fall for scammers like him. If he were confident on his ability why wouldn’t he take a percentage of your portfolio if it increased in value? Why ask for payment up front?

It’s B.S. just like rich dad poor day and all the other crack pots out there that claim superiority when in fact they pray on the weak and foolish.

Oh I have a cure for cancer too. Just send me $29.95 plus shipping and handling and I’ll send it out to you. I’m smarter than 50000 researchers. Give me a break.

#138 Abitibi Doug on 01.16.12 at 1:04 pm

Well, that settles it. My income varies from one year to the next so in lean, low income years I’ll withdraw some money from my RRSP’s, pay the tax, and be done with it.

I see some bashing of Investor’s Group by this sad blog. While I have done OK with Investor’s over the years (moving money into equity funds when they’re cheap, and out when they’re pricey), in the near future my plans are to move money out and into other investments. What kind of dividend bearing investments to buy? Stay tuned to this blog.

#139 disciple on 01.16.12 at 1:06 pm

Illusions… how prescient and timely a topic. I can tell you about many. But for those who have only started reading disciple, let’s start with the most important illusion of all which is… Western Culture. Don’t confuse this with ethics, higher education, fine arts or technology. Your real rulers sacrifice sleep in the attempt to have you transpose and mix up meanings and word associations. Don’t be fooled. They walk among us, some of them are immortal by human standards, and what they desire above else is your mind, your very soul. They feed off your greed and fear, as delectable fruits, and they farm these through cultivation of ignorance, fed by the waters of ILLUSION.

But enough for now. Your hearts can only take so much truth in one day.

#140 Freedom 85 on 01.16.12 at 1:06 pm

Garth,

We’re (the consumer – average Joe Citizen) always the prey, not just in RRSP season…..

#141 sam.i.am on 01.16.12 at 1:25 pm

#103 debtified:

>> He can also be dangerous to the gullible.

Kind of unfair to make such a statement about someone who can’t defend themselves due to a publication ban. Do you care to elaborate on this point to help the other readers decide if the assertion is valid?

#142 Ogopogo (né Okanagan Renter) on 01.16.12 at 1:49 pm

#77 45north
Ogopogo (née Okanagan Renter): shouldn’t that be né Okanagan Renter?

Touché.

#143 Rental monkey on 01.16.12 at 1:59 pm

Disciple@ 139

That Winter Marine video was brutal. Gave me tears and goosebumps at the same time. What a waste Iraq has been. The Iraqi’s didnt deserve any of it. So, so sad. And have we learned ANYTHING? The US is hungry to go after Iran now, so is it going to be more of the same?

Peace is not profitable and Harper isnt going to look out for this country…..just his ELITE buddies.

God help us all, and I am not a thumper.
Thanks again.

#144 Junius on 01.16.12 at 2:09 pm

#120 Fat Charlie,

I agree with you. We used RRSPs in a very traditional way some years ago.

1) It was good forced savings and we did use it to build up our first downpayment.

2) The refund was used to pay off debts. We would target one or two debts a year and get rid of them completely.

It was the first experience with saving and investing we had and it taught us some good habits. Of course, if I knew then what I know now I could have managed things better but it could have been worse!

#145 Joeseph Q on 01.16.12 at 2:14 pm

Oh Oh! – Game over in Vancouver.

Vancouver Prices down year over year based on CREA stats released January 15th (December ’11 ($689,057) vs December ’10 ($700,773).

http://www.crea.ca/public/news_stats/statistics.htm

Garth, you have to give this very important turning point in Canadian RE some airtime. Good luck finding any mention of it in the CREA press release or the Globe and Mail.

Early 2012 is shaping up to be an absolute bloodbath in Vancouver, and once more people start to catch wind of stats like this, they’ll be sprinting for the exits. As is usual when a bubble pops – the first few out will be the winners while everyone else is left holding the bag.

#146 Spiltbongwater on 01.16.12 at 2:17 pm

There is an article about Shawn Allen in the Province today. I think having such a celebrity on this blog would be a good thing. Maybe Garth can let him back in?

http://www.theprovince.com/business/Merits+year+mortgage/6001825/story.html

Being in the media and being an arrogant nimrod are not mutually-exclusive. — Garth

#147 John Prine on 01.16.12 at 2:21 pm

We are 60 and 53. Have RRSP’s, Maxed TSFA’s, some dividend paying stocks, a few steady mutual funds, small company pension (1 of us). One paid for piece of real estate and no debt. RRSP’s will work for us as wife has high salary but no pension plan so careful withdrawals will work for us. May not be maxxing everything but will have enough to live on and play a little. Not very high risk tolerance based on several downturns where years of bad advice from “financial advisors” resulted in wiping out of years of savings. A good balance of all kinds of investments gives us piece of mind

#148 Canadian Watchdog on 01.16.12 at 2:22 pm

Was sitting here nice a quiet until this came in http://i44.tinypic.com/33nu89j.png

Greek default now imminent.

#149 sam.i.am on 01.16.12 at 2:23 pm

#122 … You sound skeptical :)

I’ve been a subscriber to Investor’s site for a few months. The Internet is full of scammers but Investors Friend is not one of those. He may have made some rude sounding statements, but that aside, his investing guidance is solid and all the rec’s are backed with a thorough analysis of each company’s financials plus market prospect assessments. I care more about methods and results than feelings, especially on the Internet where one needs a thick skin.

As for managing other’s accounts…I have a paid advisor managing most of my accounts (a one man show, US, SEC series six qualified, flat fee %) and have some insight. I make sure never to try and influence my advisor even when the market is tanking and I want to, or I disagree with some position he’s taken out. I believe it is best to leave the advisor alone to do his job as he sees it. If he doesn’t beat the market, I can always fire him. But I’m sure there are some clients who do make noise when the going gets tough. Dealing with customer service in these circumstances has got to be a pain in the butt. It is not surprising that Investors Friend chooses not to go down that road. It is a whole other level of stress and compliance.

#150 Nostradamus Le Mad Vlad on 01.16.12 at 2:25 pm

#104 GregW, Oakville — Afternoon Greg.

The west’s cycle has almost finished now, and like a person drowning, will do anything they can to stay afloat.

This is why limiting ‘net usage, halting free communication between individuals is one of the resources they use, hence SOPA and NDAA.

But all things are in their rightful place, and all things — empires included — run their course and finish.

#107 Sky — Good analogy with Hotel California. California’s broke now!

#119 Ron Burgundy — FWIW, what I do at the Credit Union is cash in when the stocks are higher, put the total into a chequing account then write a cheque to myself for the full amount, deposit it with our CFP who places it in a non-registered account and gives us a set monthly amount.

#141 I’m stupid — I don’t invest in his chosen portfolios, but his track record from his site here
) is pretty good. If I were more knowledgeable, then I would pursue his recommendations. I also enjoy his explanations of investments.

#143 disciple — “Illusions… which is… Western Culture.” — Yogurt is made from bacterial culture, so I guess western culture comes from Malwart on a $3.99 special!

#151 JRance on 01.16.12 at 2:45 pm

RRSP’s don’t have to be used for retirement. They should be withdrawn during low income year and topped up during years you are in a high tax bracket.

I’m planning on taking a year off work to travel (zero income) and will be withdrawing $42k from my RRSP’s, which will put me in the lowest income bracket. When I re-enter the workforce with a higher wage, I’ll start maxing out my contributions again.

#152 JRoss on 01.16.12 at 2:48 pm

“You end up with 50 G’s of disposable income on a 200K salary and both your and your wife are near dead from working the hours.”

Unadulterated BS.

My wife and I both make 100K+. To say we end up with 50k disposable income between us is inane, and we not ‘beat from the hours’. Indeed, we SAVE 50k between us. Either you make very bad choices and have a terrible accountant or you are dogmatically opposed to progressive taxation.

#153 Devore on 01.16.12 at 2:51 pm

#134 disciple

Please let me know when you find an honest government.

You don’t, so why help them be dishonest.

Nowhere did I imply there is an honest government.

And oh yeah, there is not a shred of difference between evade and avoid. But thanks for the laugh.

One is legal, one is not. Next.

#154 a prairie dawg on 01.16.12 at 2:57 pm

#118 Daisy Mae

Aw come on, I was kidding. I also left the IG fold years ago. The fees are too high. I used them for a few years in the early 90′s.

I was just egging Garth a bit. Like he doesn’t have enough grief from the metal heads, the doomers, and the RE pumpers already here already… lol

#155 Herb on 01.16.12 at 2:57 pm

#147 Rental Monkey,

BUT Iran IS evil. Did you notice that they have parking meters? PARKING METERS, right at time mark 1:29 of Disciple’s first #139 link.

#156 Boomer on 01.16.12 at 3:06 pm

Garth, how did you get Rob Ford to put on a Spider Man suit! Yikes!

#157 betamax on 01.16.12 at 3:19 pm

#84 Waterloo Resident: “if homes drop 2%, masses of investors like him will jump into the market and push things up 20% in just a matter of minutes.”

Nice theory, but that’s now how it worked out in the US or anywhere else. Once it crashes, the herd runs for the hills.

#158 Smoking Man on 01.16.12 at 3:25 pm

Home sales rise in Dec 1.8%

ahhhhhhhhh

The herd…………..

#159 betamax on 01.16.12 at 3:28 pm

#120 Fat Charlie: “If your “free money” is used for the powers of good (debt pay down, student loans etc) vs evil (big TVs, big fake boobies), it’s a unique opportunity to get yourself ahead.”

True, and the reason why the unwashed masses blow their refund on useless crap is due to their perception that it’s “free money.” It’s not. It’s their own hard-earned money, temporarily returned as a chunk of savings. They should treat it accordingly.

#160 betamax on 01.16.12 at 3:36 pm

I put some money previously in RRSPs, but no more, thanks to the education here and elsewhere.

I don’t see how taxes aren’t going to be higher later. Also, my pension and my younger, working wife are going to keep my retirement tax rate high. Admittedly, a pension and a younger wife are not the worst problems to have, but RRSPs aren’t looking like a good choice given that I have them.

#161 Blacksheep on 01.16.12 at 4:16 pm

Chubster # 136,

Todays topic: Illusions

I agree a Sovereign Governments spending theoretically, should be constrained by the
Gov’s ability to tax, avoiding an unseen
inflationary tax burden on the masses.

Unfortunately this is not the way sovereigns
operate. I also agree the “kicking the can down the road” thing is NOT infinite and if abused long
enough, will have dire consequences, as per your example: Japan @ 200% debt to G.D.P. lack of
growth = big trouble.

Sovereigns (Canada inc.) accept, ONLY “fiat” for
tax liabilities. This creates the demand for dollars,
with no other option.

That’s it.

They do not need our dollars, other than to
maintain the publics perception of demand / value.

This is why people calling for a return to honest money, via the gold standard are dreaming
(and I’m a Sprott PM bug). A sovereign would
never voluntarily relinquish the control / flexibility
fiat based currencies offer.

What happens to “cash’ sent to the US Government, for tax liabilities? Watch the videos, you’ll be shocked.

Link:
http://www.netrootsmass.net/fiscal-sustainability-teach-in-and-counter-conference/stephanie-kelton-are-there-spending-constraints-on-
governments-sovereign-in-their-currency/

Dr. Stephanie Kelton, professor of Economics, University of Missouri. Video # 1 & 2

The PIGS can’t print, so that’s a whole different problem.

take care,
Blacksheep

#162 Two-thirds on 01.16.12 at 4:19 pm

Good post today.

I generally agree with the spirit of the message. A dominant theme here is that with an RRSP, there is no way of knowing what will happen in the future to the taxes applicable to RRSP withdrawals.

Garth suggests that in the future taxes may rise, thus posing a (potentially) unpleasant surprise when withdrawing funds from the RRSP “decades from now.”

This will likely be the case, as plugging the deficit may take a long time and we will all have to contribute to make this happen, willingly or not.

However, the same uncertainty applies to other variables “decades from now”, including:

1) Tax rates on capital gains and dividends
2) CPP and OAS existence and value
3) TFSA existence and/or non-”taxability”

If the main reason why tax rates (affecting RRSPs) may go up in the future is because the government needs revenue badly, why would the above three sources of revenue be exempt from meddling? Remember income trusts post-2006? Why would something like that not happen again?

That to me, is a blind spot in our gracious host’s argument against RRSPs.

A government hungry for revenue will find a way to tax, cut, withhold, defer, penalise, transfer, alter, re-structure, consolidate, or/and “reform” just about anything that can bring in some much needed bacon.

Future uncertainty applies across the board. What is untouchable? Capital gains on house sales? RESP gov’t contributions? Tax credits for charitable donations? Disability credits?

It seems reasonable that “reforms” on TFSAs and tax rates on dividends and capital gains will happen before reforming more “socially-defensible” outlays such as the ones noted in the above paragraph.

Unless of course, the priorities are set by the “1%” (perceived or real).

#163 Mixed Bag on 01.16.12 at 4:21 pm

Garth, add me to the list of people asking how to best manage withdrawing money from their RRSP with minimal tax hit.

Thinking back, we should have done that when on parental leave with the kids, but weren’t as financially aware at the time. Would withdrawing from RRSP’s while receiving parental benefits from EI be considered income that subjects the EI to clawback?

#164 Bankers and Realtors in a Panic on 01.16.12 at 4:22 pm

The RE industry know the housing crash is here and now and hope they can sucker in the last few suckers.

Hey Garth can you smash apart the numbers of CREA for us tonight? The housing market is very weak and they are very scared.

#165 TFSA on 01.16.12 at 4:34 pm

What are people doing with their TFSA money, I mean your not just throwing it into some bank account so that you don’t have to pay tax on .005 % interest?
LOL

#166 TSFA on 01.16.12 at 4:35 pm

What are people doing with their TSFA money, I mean your not just throwing it into some bank account so that you don’t have to pay tax on .005 % interest?
LOL

#167 refinow on 01.16.12 at 4:42 pm

My only concern with TFSA vs RRSP is the fact that there is no penalty to w/d from TFSA, it is too accessible. People are funny, many spend what they can get their hands on… Somehow the fact that there is a tax penalty to withdraw RRSP’s people are less likley to loot their RRSP’s, TFSA on the other hand is only a click on your online banking web page away from being dropped into your chequing account.

50″ Plasma….Click now a 80″ plasma, i will just borrow from my TFSA and pay it back later….

Cash in an RRSP to buy a TV…never…

#168 villain? on 01.16.12 at 4:46 pm

@ #113eaglebay – Parksville on 01.16.12 at 10:03 am
————————————————————–

The reference in regards to the lowering of interests rates was the point.
Most people don’t make those amounts of money to afford that kind of borrowing.
Irrelevant if country or individual, when the time comes to pay the piper, you better be able to do that.
If not, your credit rating drops. Live and learn- from those countries.

Not everything is black and white,
and no! I do not watch BNN! Apparently you do, why else would you ask?

#169 spaceman on 01.16.12 at 5:05 pm

Bobby on 01.15.12 at 7:16 pm

Looking forward to your update tomorrow Garth. I have sizable RRSP’s that are distributed equally between my spouse ( spousal RRSP) and myself. Was looking to that as a way to income split? TFSA’s are maxed out too.
Perhaps there is a better way?

Do a little math, and calculate your approximate income from all sources, at retirement, pension, rrsps, non registered, hot dog stand side business.

How much tax will you pay, as compared to a non registered tax efficient investment (well your TFSA is maxed, and you had better have it in equitys not T-bills)

Remember the rule of 10, in ten years at 7%, your investment doubles. The taxable portion is 50%. In or out of you RRSP doesn’t matter, it is all taxable at some point of time.

PS Rich People do not have RRSP’s, they are of no use, as they get taxed more when they pull them out.

#170 Kris on 01.16.12 at 5:19 pm

#169/170. TFSA
The TFSA isn’t aptly named. Should have been TFIA (Inv Account). Why? The word “savings” conjures up a 1% savings account to most people, which is frankly wasting the tax-free room.
Rather, use a TFSA to get a return like 5% – Now that’s worth protecting from the tax man.

#171 Stevenson on 01.16.12 at 5:21 pm

For the average individual this may be true for RRSP. For others with proper planning it may be very different. I maxed my RRSP out every year and I have never paid a single dollar to the government when withdrawing my RRSP. I have properties with rental income that are under my brother’s name who is a citizen, but doesn’t work in Canada. I retired quite early with savings and started to withdraw my RRSP every year, but just enough to be under the tax limit.

It’s not about what tool you use, but how you use it. Just don’t be one.

Think the RE market is whacked? Great… just buy the dips and sell the rallies. The introduction of historical low interest rates in 2008 was a flashing signal to leverage and buy, but some of you hesitated. Don’t tell me your better off now.

#172 John Prine on 01.16.12 at 5:24 pm

#170 TSFA.
1.6% plus another .16% in Credit Union profit sharing, it’s not a lot but not .005 % either. Comfortable as is just a portion of investments.

#173 chubster on 01.16.12 at 5:32 pm

@blacksheep #165.

i think we actually agree on principle and on what is likely. my point is that it is inconsistent to ask households to become responsible and not demand the same of sovereigns. in fact, it is the recipe for a 2 tiered society.

i don’t believe in a currency by fiat. no money ever became widely accepted because simon said so. usd is a pm derivative – that is how it came gain wide acceptance. to the extent it remains a useful money, its acceptance will continue. to the extent its custodians abuse the power afforded them, its acceptance will diminish. unjust legal tender laws, capital controls, etc. may slow the decline. but like all forms of authoritarian price fixing, they will not hold.

when the euro fractures and each of the piigs chooses printing over default, their currencies will blow up. if japan tries that, the same will happen. usd will benefit since it is least bad. but it is not special otherwise and the same rules apply.

#174 TSFA on 01.16.12 at 5:36 pm

#176 John Prine on 01.16.12 at 5:24 pm
1.6% plus another .16% in Credit Union profit sharing

WOW… that’s a big tax saver. lol

What do you pay the bank in admin fees a month for this TFSA account?

#175 TFSA on 01.16.12 at 5:50 pm

The government is laughing all the way to the bank with their generous TFSA. You think this would have happened in the 80′s at 20% interest? LOL

#176 Ben on 01.16.12 at 6:11 pm

The government is laughing all the way to the bank with their generous TFSA.
——————————————————
Yes but the gov also knows it’s average Canadian citizen is in debt up to their ear lobes and has to do something to get them to start saving instead of borrowing.

#177 Blacksheep on 01.16.12 at 7:06 pm

Chubster # 177,

“actually agree”

I agree, it is not a fair way to run the system,
but that does not change the way it functions.
——————————————
“no money ever became widely accepted because
Simon said so”

Tax liabilities created by our Governments creates
the requirement for fiat dollars, Period.
—————————————–
It’s a long road to understand MMT.

take care,
Blacksheep

#178 Two-thirds on 01.16.12 at 7:49 pm

An article on debt, unemployment, and bankruptcy worth-reading, IMHO. Check out the following excerpt (emphasis mine):

“For the 12-month period ended October 31, 2011, the total number of insolvencies decreased by 8.2 per cent compared with the 12-month period ended October 31, 2010.

Hoyes said that while the October numbers were encouraging, he’s also worried that the data obscures the reality that many people are only surviving because interest rates are so low.

Hoyes believes three factors are contributing to what could be a bankruptcy “bubble”: banks easing up on borrowers, an influx of debt settlement companies and low interest rates.

First, Hoyes believes banks are getting used to the weaker economy and are thus being more lenient with debtors than they would have been a few years ago on missed mortgage payments.

Now, he said, there are simply too many Canadians who are behind on their payments for banks to crack down.

TD Bank CEO Ed Clark said at a banking conference Tuesday that the lender would be reluctant to push someone out of their house if they can no longer afford payments if it was still comfortable with the mortgage.

“We stood by our customers in the 2008 to 2010 period and modified lots of things that would keep them there,” he said.

At the same time, Canadians are becoming complacent about increasing levels of indebtedness, Hoyes said.

“High debt levels are the new normal … We are just used to it now, it’s just the way it is and that’s kind of eased off some of the pressure.”

Consumer debt has come to be seen as something like a dull headache, rather than a life-threatening situation as the low rate environment blunts the pain, he added.

And an influx of debt settlement companies that have cropped up since the recession are also doing their part to prolong bankruptcies, he added.

These companies temporarily remove potential bankruptcy filers from the system as they take monthly payments from debtors to pay creditors back in a lump sum, but if those plans don’t work out, individuals end up filing for bankruptcy down the road, Hoyes said.

For Abdo at Equifax Canada, alarm bells that would signal a widespread consumer collapse include an increase in delinquencies and bankruptcies and a move in the unemployment rate back above 7.8 per cent.

If such a downturn were to happen, those with the highest debt-to-income ratios would be left without a buffer or remedy, given that savings levels are also tumbling, said Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada, Inc.

“If someone starts losing their paycheque how are they going to service all that debt if they don’t even have any savings?” he said.

“I’m a little concerned when debt-to-income ratios grow as high as they are and there’s so much volatility in the economy without the savings.””

http://money.ca.msn.com/savings-debt/yourmoney/bankruptcy-could-rise-along-with-unemployment-40

Let’s keep a close eye on the unemployment rate. Our current 7.5% is not terribly far from the 7.8% threshold mentioned in the article…

#179 Jimbo on 01.16.12 at 8:14 pm

I see some banks are now offering 10 year mortgage rates for around 3.99%. Is this a good deal or is there a catch?

http://m.theglobeandmail.com/globe-investor/personal-finance/rob-carrick/buy-now-to-get-an-unheard-of-rate-for-a-10-year-mortgage/article2304460/?utm_medium=Feeds%3A%20RSS%2FAtom&utm_source=ReportOnBusiness&utm_content=2304460&service=mobile

#180 Nostradamus Le Mad Vlad on 01.16.12 at 8:19 pm

-
Mega Failures Apt description of men, the weaker sex; Occupy Igloos Davos, actually and Occupy Belfast; 94% The real US budget problem; Downgraded again “A shot across the bow of the EFSF hitting the wires this afternoon.”; 5:41 clip Rate to the bottom; IMF Global catastrophe. Mebbe that’s what TPTB want; Jobs US citizens have quit looking altogether; Bankrupt “The key point is that the burden will continue to be dumped on the middle class.”; Paranormal Activity It’s the market; Merkel and Sarkozy Their stars are fading fast; BoA Take them on.
*
For Greg W., Oakville Further on the NDAA; 4:34 clip Explosive m$m, because they are paid for and controlled, and 3:18 clip UK all ready for Iran oil ban, which forces the price up so the rich get richer; UK and US Tortured intelligence? 4:59 clip Solyndra went belly-up, and there are a few more Solyndra’s; Robot Warfare Military’s new way of fighting; SArabia and China have signed nuclear pact (that will piss u-know-who off); Nazi Nuremberg Laws now being considered in the US; Another shot against Harper re: the F-35′s; Ron Paul surges, Huntsman quits.

The Fourth Reich Right here in NAmerica; Objective Comparisons of the US govt. to ‘oppressive regimes’; BGG “Red-faced global warming policymakers are now back tracking as independent experts increasingly discredit the cornerstone of climatology: the greenhouse gas effect (GHE).”; Martin Luther King A very good revolutionary speech; Thyroid Cancer “But we are certain it has nothing at all to do with those leaking nuclear reactors around the planet, because General Electric paid us a lot of money to say so!” wrh.com; Killer TB New strain in India.

#181 Habbit on 01.16.12 at 8:22 pm

#166 Two-thirds Great Post. anything can be changed anytime. Looking forward to Garth’s post tomorrow.

#182 chubster on 01.16.12 at 8:36 pm

@blacksheep #181

re: tax liabilities creating demand for fiat dollars

road still ends when market refuses to accept govt credit issuance. they’ve been abusing things for so long with consequence, all manner of new paradigms have been theorized. my favorite was the ww savings glut. they’re all bunk. re-integrating china and india back into ww labor pool depressed wages for 4 decades, providing cover for unchecked credit issuance. that resource is now tapped out – wage inflation already started in asia. credit issuance will no longer continue without the usual consequences. recommend google david stockman – “the end of sound money and triumph of crony capitalism” among others.

#183 Jon B on 01.16.12 at 8:37 pm

Can we please skip part 2 of RRSP and get to the part where we rock as mentioned?

Shut up and read, kid. There’s a test later. — Garth

#184 Lord Humungus on 01.16.12 at 9:47 pm

The Juice ! The precious Juice!
Give us the juice and we will let you all live !

#185 InvestorsFriend (Shawn Allen) on 01.16.12 at 9:48 pm

DELETED

#186 Daisy Mae on 01.16.12 at 9:49 pm

prairie dawg on 01.16.12 at 2:57 pm
#118 Daisy Mae

“Aw come on, I was kidding. I also left the IG fold years ago. The fees are too high….”

****************************

Well, I wasn’t.

#187 Pickled Lenin on 01.16.12 at 10:00 pm

Comrades..

Keep up the good work…

Everything is unfolding as scheduled …you stupid SOB’s

#188 The Magician on 01.17.12 at 8:12 am

I don’t agree
I put in 10,000
I get back 4,641 in tax

I can either invest 10,000 in my rrsp or 5,359 outside of it
If my investments are at 5%, I net 4.25% outside (Assuming im taxed at %15)
In 20 years, the 5359 outside is worth $12,319.84 The 10,000 inside is worth $26,532.98 inside and if I take it all out at 46.41% tax, I will still have over 14,000 at the end of 20 years. The tax rate would have to incres to 53.56% in order to be equal in this scenario. What are the chances of that???? that is the risk I would be taking. Please advise.

So take it. Good luck. — Garth