It’s RRSP season, a time to consider topping up your contributions to build your nest egg and reduce your taxes owning for 2017. RRSPs are a useful tax-planning tool and one of the most effective ways to save for retirement. But some retirees don’t see it that way now that they’re in the withdrawal phase and facing tax rates upwards of 50 percent on money taken from their RRIF.
It’s one of the more frustrating financial beliefs, that RRSPs are nothing more than a tax trap that favours the government.
“Regret over using RRSPs is most likely to kick in with the tax bill associated with these RRIF withdrawals. But Mr. Golombek urges retirees to remember that they essentially didn’t pay tax on the income they used in their working years to contribute to an RRSP and that they benefited from years of tax-free compounding.”
I put this myth right up there with some other commonly held beliefs; that CPP won’t be there for me in retirement, renting is just throwing money away, and there’s no point working overtime because it pushes me into the next tax bracket.
Part of the problem in today’s world of ‘alternative facts’ is that if you repeat a belief over and over again eventually it becomes accepted as truth. As more baby boomers enter retirement and start to draw down their RRSPs, this belief that RRSPs are tax traps will only continue to grow.
Here’s a truth-bomb: RRSPs and TFSAs are the mirror image of each other. One you contribute to with after-tax dollars and pay no tax upon withdrawal, while the other you contribute with before tax dollars but you must pay taxes upon withdrawal. If you happen to be in the same tax bracket in retirement as you were when you made the contribution, the RRSP and TFSA race is a dead heat.
This Week’s Recap:
On Monday I shared 4 tips to help you start investing with ETFs.
On Wednesday Marie compared TFSA interest rates at the big banks and several online lenders.
And on Friday Marie shared four things to take care of this February.
Over on the Toronto Star I offered up my top credit card picks for 2018.
Many thanks to Rob Carrick for sharing my annuities post in his latest Carrick on Money newsletter. According to Rob:
“I’m among those who marvel that annuities aren’t more popular.”
Global News consumer reporter Erica Alini shares 7 common mistakes that explain why you never have enough money.
A bargain isn’t always a bargain. Why you should stop trying to save money on everything.
This one is right on the money: The real reason why your finances are tankin’.
It’s hard to predict how you’ll respond to risk, says the always brilliant Morgan Housel.
Vanguard has introduced several ‘one-ticket solution’ ETFs – a globally diversified balanced portfolio packed into one-fund at an ultra-low MER of 0.24%.
Dr. Networth put together a great guide on passive real estate investing; from REITs, to MICs, to private mortgages and more. One of his key takeaways:
Don’t feel rushed or pressured into investing into something that you don’t feel comfortable with or don’t understand. Also, don’t invest because you have a Fear Of Missing Out (FOMO). Take your time. You don’t have to swing at every pitch.
That segues nicely into this post by Nelson at Financial Uproar (back from the dead), who dodged a potential nightmare investment in a local storage business.
In his latest Common Sense Investing video, Ben Felix shares one of the more helpful explanations of bitcoin as an investment:
Bitcoin investors: Here’s why your children might ignore you:
Bitcoin investors, years after they get burned, will try to teach this to their children. But their kids won’t likely listen. Many will say, “Mom and Dad, you don’t understand. This new technology isn’t like Bitcoin. It will change the world. And it’s price has increased a lot, so I know that I’m right.”
The Long Island Iced Tea Corp’s decision to rebrand as Long Blockchain Corp might have been a bit hasty. It turns out the company doesn’t really understand anything about blockchain. Shocker.
The boring part of personal finance: You make a lot of smart money moves, and then you just wait. That’s it.
No surprise here. A University of Alberta study says families with adult children living with them have 24% less in savings and assets than families without.
WestJet began selling tickets — some for $0 — for its ultra-low cost carrier Swoop. The carrier will offer six weekly flights from Hamilton to Abbotsford, Edmonton, Winnipeg and Halifax; six weekly flights from Abbotsford to Hamilton; and three daily flights between Abbotsford and Edmonton.
The latest Wealthsimple Money Diaries features Margaret Atwood, who was told in college that to find her place in the world she should find a husband and become a wife. Then she went to Harvard and became an award-winning writer.
On to the scandals:
The Competition Bureau says Ticketmaster and its parent company Live Nation allegedly used a deceptive practice known as drip pricing that saw customers pay sometimes more than 65 percent above the advertised price for concerts.
The New York Times looked into social media’s black market where celebrities, politicians, and social influencers alike pay big money for fake followers so they appear to be more popular online.
Finally, more context on Canada’s bread price fixing scandal, where Competition Bureau documents reveal allegations seven companies participated in a scheme that inflated the price of bread by at least $1.50 over a decade and a half.
Have a great weekend, everyone!