I have decided to start this thread to post links to articles in the media that give commonly heard but wrong RRSP advice. These result from a wrong understanding of the RRSP's benefits, by all the official players in the industry and government and media. When you misunderstand the RRSP's benefits, your strategies to maximize those benefits will also frequently be wrong. I have published the math proofs and the conceptual model that explains the RRSP's net benefits at .....
(i) The conceptual model of all the independent benefits/costs.
(ii) Common decisions that will be decided differently because of the contrarian understanding.
(iii) A spreadsheet for your own variable inputs, that calculates and deconstructs the RRSP net benefits
I won't be re-arguing the information in these links - but just referencing their conclusions.
edit Dec 2, 2015 It seems from the comments that I should give the complete list of Reasons/Excuses People Use To Dismiss the documents above. Needless to say I don't think any of these arguments has any merit in the least. Notice that no one at all has ever found any faults in my math, found any faults in the logic of my conceptual model, or offered any math to support the received wisdom.
(1) The most common reason is because they simply refuse to read the evidence. This is sadly very, very, very common.
(a) Some use the reason 'that I am a flake' and they cannot afford to waste their time. They are often proud of this stance and publicly state their refusal.
(b) Some have a 'how dare you claim that everyone else is wrong' response. Yes, I do dare, and I am proud of daring. In my books being 'right' or 'wrong' is not determined by popularity. It is not determined by the credentials of any backer. It is determined by the scientific method.
(c) Some refuse to read, even while claiming they have. Once you have read the paper it is easy to identify these people by their comments - which clearly indicate they have no idea what has already been argued.
(d) Some take a passive aggressive approach and continue repeating the false claims while stating that .."I am not saying you are wrong". Either (i) they have either not read the material, or (ii) they have read the material, not been able to find any faults, but cannot admit they are wrong. Either way they are refusing to think.
(e) Some believe that there are no absolute 'right' and 'wrong' statements about the RRSP's benefits. No claims need to be proven with math. Everyone can pick whichever selection of claims they want. This is probably a result of modern education systems where every participant gets a prize and 'we are all winners'.
(2) The second most common reason to stop reading very quickly, is because people refuse to think conceptually. They cannot distinguish between the attributes of the RRSP itself, and their own personal cash flows and personal choices how/when to realize the RRSP's tax impacts. They don't accept that cash is fungible - that the cash in their wallet cannot be considered to have any history or source. They do not agree with the 3 premises listed on the SSRN paper's page 2. But the choices they make personally are not necessarily the same choices made by other people, and do not define the RRSP system itself. If they had continued reading they would have found that the 'Penalty From Delay In Claiming Deduction' factor provides the math that represents the effects of their personal cash flow choices.
(3) A large number of people stop reading in the middle of the analysis of the 1st benefit (from sheltering profits) - because it presumes no change in tax rates between cont and w/drawal. They believe the RRSP's benefit comes from that change in rates. They seem to not have noticed their pet benefit listed in the table of contents, and never read far enough to see it is discussed next in line.
(4) Many people fixate on the terms I use, and conclude that because they don't like the term, the math and concepts are wrong.
(a) Some object to my claim that the different sources of net benefits are independent and ADD together ---- because some of those factors always reduce the net benefit, and should be said to be subtracted, not added. I could not care less. You can think of the 'Penalty From Delay in Claiming Deduction' as being a positive that is subtracted , or you can think of the Penalty as being a negative in itself which is added.
(b) Some people stop reading when I first use the term 'Contribution Credit' because they feel it is a 'Tax Deduction' not a 'Tax Credit'. Therefore I must be an idiot. Of course tax deductions refer to adjustments to the income on which $$ of tax are calculated. Tax debits and tax credits refer to the actual $$ of tax - which are just percentages of the deduction. So it is not me who is the idiot.
(c) Some object to my use of the term 'Penalty' for all those factors that are negative (reduce the net benefit). They use a dictionary giving only one usage (penalties are sanctions for breaking rules), and feel that any other usage is wrong. Of course they never offer any suggestion of a better word. And of course better dictionaries allow for my usage.
(d) Some people try to dismiss all the factors, other than their own pet benefit, by dismissing them as only 'opportunity costs'. All financial choices result in your experiencing one outcome, and NOT experiencing another. So yes, one could consider the latter to be an 'opportunity lost'. But those outcomes are measured in hard cash wealth. If you want to end up with poorer because you dismissed a factor as only an 'opportunity cost', go ahead.
(5) A large number of people refuse to acknowledge the difference between the mechanics of the RRSP system, and it benefits. They quote mechanics as if they are proof of benefits. They refuse to acknowledge that any cash going into the RRSP system must pass through all the steps before you can spend it - it is the net effect of all steps combined that matter. They refuse to admit that tax effects at one step are cancelled by tax effects at another step.
(6) Many dismiss everything because they don't agree with the variable inputs used as examples. Somehow they cannot understand that once you have proved that A + B = C, it does not matter what A equals, or what B equals, because the point is that when added they always equal C.
(a) Lots of people get irate when my example of the 'Bonus/Penalty From Tax Rate Change' used a higher tax rate on withdrawal. They have a lack of imagination and feel that is impossible. But who cares? The math calculation of the Bonus/Penalty remains the same and applies to any assumption.
(b) A minority of people (thankfully) think they will be able to withdraw RRSP funds without paying any tax. Therefore they argue that the Contribution Credit to a Benefit. Yes the math does support that claim --- for only this particular assumption. It does not work in any other situations. It does not disprove my model. In contrast, my model works in all situations - even this one.
(c) Almost all other variables used for examples have been used as reasons to dismiss my math - whether it is the # years to withdrawal, or the Asset Allocation percentages, or the effective tax rate on investment income, etc etc. People do not understand that when a model is correct, it works for ALL situations, with all assumptions, all variable inputs.
(7) A few people object to any disclosure of the true benefits because they feel this makes the RRSP look less attractive (of less benefit). Most of these people start from the idea that there is no permanent sheltering of profits in an RRSP. They fail to look at the math showing just how huge this benefit is. They hear me refute the false claims, and presume this means I am saying there are less benefits. But no one should tell lies just to 'sell a product'. False claims should be attacked every time. The true net benefits of the RRSP are huge, and are sufficient to 'sell the product' truthfully.
(8) Some people actually argue that the true benefits of an RRSP should not be taught, because they feel that in real life people do not actually realize those benefits. They fail to appreciate that any failure to realize those benefits is because they have made wrong choices - often because they were given wrong advice - which most always was because the advisor had a wrong understanding of the RRSP. The point of the advice industry should be to help people make the correct choices. To do that they need to correct their own understanding and correct their advice.