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Originally posted by DP_gta

It is hard to imagine how anyone would loose by contributing to RRSP. Take this example of Inam (name changed) who is 55 yrs old, earns $60,000 and has to 36% income tax (Marginal Tax Rate). She pays tax $12,960 yearly. She asked me if I could help reduce her tax burden, she did not believe in saving plan or RRSP. Here is my game plan

She has a RRSP room of $10,000 on her salary which she never used. If she contributes to this she gets a tax refund of $3600 ($10,000 x 36% MTR).

1. Her tax burden is reduced from 12,960 -3,600= $9,360
2. He actual total saving is RRSP contribution of $10,000 + $3,600 tax saving= $13,600. That $3,600 is kinda free money, it would have gone to revenue Canada. She can amplify this tax saving by compounding it.
3. Suppose she DRIPS back the tax saving into her RRSP too. The compounding of this money will benefit her greatly, you will see.
4. In 10 years (@ 12% growth) her annual savings of $13,600 will grow into $ 238,662. All of this is tax free growth. There is a lot of b.s. about having to pay tax when you withdraw RRSP growth. Please give me a break, who would be foolish enough to withdraw $238,660 in cash. Crazy myth about RRSP.
5. After 10 yrs she will be 65 and eligible to take early retirement. With her RRSP tax deferred balance of $238,662 she will buy a Guaranteed Life Minimum Monthly Income Plan or fixed life annuity plan (like a RRIF). This is the most popular route for many in North America. In US they call this, variable annuity.
6. On $238,662 @ 12% for 15 years she will get $2864.35 monthly till she is 80.
7. Inam's total annual income after 65 is $34,372, ($2864 x 12 months) she will be subject to tax on this amount not the entire RRSP amount. Withdrawals are subject to tax, minimum withdrawals attract no taxes.
8. This is only an illustration and does not include CPP, OAS, DSPS and other retirement benefits, claw backs and tax credits.
9. Self directed RRSP monitored and implemented by a financial planner is the best way to ensure a peaceful and easy retirement plan.

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Originally posted by investpro

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Originally posted by DP_gta

It is hard to imagine how anyone would loose by contributing to RRSP. Take this example of Inam (name changed) who is 55 yrs old, earns $60,000 and has to 36% income tax (Marginal Tax Rate). She pays tax $12,960 yearly. She asked me if I could help reduce her tax burden, she did not believe in saving plan or RRSP. Here is my game plan

She has a RRSP room of $10,000 on her salary which she never used. If she contributes to this she gets a tax refund of $3600 ($10,000 x 36% MTR).

1. Her tax burden is reduced from 12,960 -3,600= $9,360
2. He actual total saving is RRSP contribution of $10,000 + $3,600 tax saving= $13,600. That $3,600 is kinda free money, it would have gone to revenue Canada. She can amplify this tax saving by compounding it.
3. Suppose she DRIPS back the tax saving into her RRSP too. The compounding of this money will benefit her greatly, you will see.
4. In 10 years (@ 12% growth) her annual savings of $13,600 will grow into $ 238,662. All of this is tax free growth. There is a lot of b.s. about having to pay tax when you withdraw RRSP growth. Please give me a break, who would be foolish enough to withdraw $238,660 in cash. Crazy myth about RRSP.
5. After 10 yrs she will be 65 and eligible to take early retirement. With her RRSP tax deferred balance of $238,662 she will buy a Guaranteed Life Minimum Monthly Income Plan or fixed life annuity plan (like a RRIF). This is the most popular route for many in North America. In US they call this, variable annuity.
6. On $238,662 @ 12% for 15 years she will get $2864.35 monthly till she is 80.
7. Inam's total annual income after 65 is $34,372, ($2864 x 12 months) she will be subject to tax on this amount not the entire RRSP amount. Withdrawals are subject to tax, minimum withdrawals attract no taxes.
8. This is only an illustration and does not include CPP, OAS, DSPS and other retirement benefits, claw backs and tax credits.
9. Self directed RRSP monitored and implemented by a financial planner is the best way to ensure a peaceful and easy retirement plan.

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For info of all CDs, what investment gives you a straight line return of 12% as per your illustration?

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Hi DP_gta

Thks yr reply. I did not ask for funds that ON THE AVERAGE have given a return of 12% but ones that have given a STRAIGHT LINE return of 12% per year every year.

There are several sites that can give the names of funds of more than 12% return on the average- what constraints are you referring to? Off hand even I can think of several. Templeton Growth, AGF precious metals, Dynamic Canadian power growth, TD Latin American, BMO natural resource, CI signature Canadian resource and more.

Anyways, even if there are funds that have given returns of 12% year after year every year, there is no guarantee they will do so going forward, and no guarantees that a financial advisor or a bank officer will pick that and keep switching to chase the ones that are giving that return, for the client.

Your illustration is based on a straight line return which is highly improbable- there may be funds that return 30% in a year, 60% the next and then lose 25% etc, on the average 12%- yes, every year, year after year- doubtful.

Building a Nest Egg- RRSPs

It is that time of year, when many start thinking about how to save for the future and reduce their taxes.
Whether you're just starting out in the work force, or well advanced in your retirement planning, it's in your best interest to stay up to date on one of Canada's best tax breaks - registered retirement savings plans or RRSPs. RRSPs also help to turbo charge your savings as they grow in a tax-sheltered environment.
Taking an example, this means that people in the middle tax bracket whose marginal combined federal/provincial tax rate is somewhere around 33%, (depending on which province you live in), would receive a tax refund of $1,650 on a contribution of $5,000. Therefore, the "real" cost of the investment is only $3,350 but the full $5,000 is still working inside the plan.
The second tax advantage resides in the sheltering of the income and capital gains that are generated by the investments in your RRSP. Simply put, your money is allowed to grow tax-free. Anyone who has ever invested in a GIC (outside of an RRSP) knows that the interest earned is heavily taxed. Likewise, a capital gains tax is levied on investments like stocks and mutual funds. But all investments within an RRSP are effectively "sheltered" from tax and allowed to compound.
RRSPs are one method by which the federal government encourages people to take responsibility for their financial future. However, to avoid the risk of providing too much of a good thing, the government has established limits as to how much an individual can contribute to an RRSP on an annual basis. The yearly maximum allowable contribution limit for 2007 is 18% of the prior year's earned income up to a maximum of $19,000
Once you've determined the amount of money you can afford to put into your plan, the next decision must be where to invest. Fortunately, there is a plethora of options. Among them Canadian and international equities vide mutual funds, Treasury Bills, bonds, stripped coupons, GICs , mortgage loans and the list goes on. It is best to explore your options with a financial advisor or visit your local bank or credit union, and ask for a person who can help you identify the options that are best for you. After all, it's your money and your future.
The deadline to make contributions eligible for deductions on your 2007 income tax is midnight February 29, 2008, but the sooner you make your contribution, the better. As a matter of fact, once you have invested into your RRSP in the first 60 days of this year, it is best if you discipline yourself to start paying yourself first every month by squirreling away savings in an RRSP. Better yet, stash away some money from every paycheck.

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Originally posted by investpro

Hi DP_gta

Thks yr reply. I did not ask for funds that ON THE AVERAGE have given a return of 12% but ones that have given a STRAIGHT LINE return of 12% per year every year.

There are several sites that can give the names of funds of more than 12% return on the average- what constraints are you referring to? Off hand even I can think of several. Templeton Growth, AGF precious metals, Dynamic Canadian power growth, TD Latin American, BMO natural resource, CI signature Canadian resource and more.

Anyways, even if there are funds that have given returns of 12% year after year every year, there is no guarantee they will do so going forward, and no guarantees that a financial advisor or a bank officer will pick that and keep switching to chase the ones that are giving that return, for the client.

Your illustration is based on a straight line return which is highly improbable- there may be funds that return 30% in a year, 60% the next and then lose 25% etc, on the average 12%- yes, every year, year after year- doubtful.

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Originally posted by sendneeraj

I am plannin to save through RRSP but i have one question that don't you think its good to save some money every month in your bank account instead of putting money in RRSP? Becaues when you save money on RRSP they don't even pay interest and even if they do.......how much ? 1-2% ?

Because when we save something for retirement and get cut on tax but when we withdraw money - (doesn't matter at the age of 69 or before) we have to pay tax on total amount and govt count rest of the money in next yr income and we pay tax again.

Somehow i am not very much impressed with all this RESP and RRSP...can you guide me or correct me if my calculation is wrong somewhere ? I have gone through all posting but still i am not getting ans. that should I save some money every month in my bank account or start putting something in RESP or RRSP...

Anyway your details were really helpful to make decision. thanks in advance.

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Originally posted by DP_gta

Yes obviously on an average,ha ha... otherwise we would all give up our jobs if we could get that kinda distribution on straight line.
BTW thx for the indices link, I was looking for something like that.

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