RRSP strategies - wrong advice in the media - Page 25
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Thread: RRSP strategies - wrong advice in the media

  1. #241
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    Quote Originally Posted by FI40 View Post
    ... In general you have more flexibility the lower your RRSP balance ...
    Quote Originally Posted by peterk View Post
    What's wrong with that though? -20% means your RRSP tax bill is that much lower when you withdraw, compared to better returns. ...
    Trouble is for a lot of people "more flexibility" means less $$$ to live their retirement. I suspect those who will value the flexibility have more $$$ for retirement than most will.


    Wouldn't avoiding the RRSP or using slower growing investments be a better choice than targeting to destroy what one has built up?


    Cheers

    Last edited by Eclectic12; 2016-03-01 at 09:20 AM.

  2. #242
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    Quote Originally Posted by Eclectic12 View Post
    Trouble is for a lot of people "more flexibility" means less $$$ to live their retirement. I suspect those who will value the flexibility have more $$$ for retirement than most will.


    Wouldn't avoiding the RRSP or using slower growing investments be a better choice than targeting to destroy what one has built up?


    Cheers
    Of course we're not saying that one should "target to destroy" funds in the RRSP. I think you're simplifying this too much. There are tradeoffs. What I said initially in a nutshell is that a higher RRSP + Taxable balance is not necessarily better than having a slightly lower total balance but with most of the funds in Taxable.

  3. #243
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    MY LAST POST:

    This year's RRSP season is now over. I created this thread to document a number of things.

    1) There were 54 articles published in the webmedia - that I had issues with. There were even more with the innocuous repetitions of the account's rules/mechanics, and the generally accepted advice "to use a TFSA in preference when your tax rate is low". Why? Is this business so very, very, very important to the account providers, that they drive this agenda? I appreciate that these accounts are wonderfully 'sticky' because they are so hard to move to another provider, but really? On-line papers have whole sections of articles just for RRSP stuff.

    2) Not ONE of the articles clearly identified the RRSP's main benefit - its permanent sheltering of profits from tax. The 2 articles by Chevreau (#201 and #222) came closest. But even there he wimped out and failed to make the necessary clarification that ..."Profits are NOT taxed on withdrawal". This explicit statement is necessary because most readers are used to being told in one paragraph how profits are sheltered IN THE ACCOUNT, only to be told later than they are taxed on withdrawal. I doubt there was even ONE reader of those posts who recognized any difference from the generally-accepted doctrine.

    3) The typical false advice that has been given for decades was repeated this year.
    (i) The contribution credit is a benefit. So ...
    a) The person contributing at the 40% tax bracket gets a larger benefit then the person contributing at the 20% tax bracket.
    b) The tax credit can be compared to benefits from other programs, like the RESP's 20% matching contribution.
    c) You can multiply your benefits by using the tax refund to (eg) make a donation that generates a deduction for charitable donations, or contribute to a TFSA, or paydown debt.
    (ii)) The RRSP's benefit comes from the deferral of taxes. You get to keep the income earned by the contribution credit during the interim.
    (iii) Income earned inside the RRSP is taxed on withdrawal at full tax rates. So ...
    a) Dividend income that would be taxed at lower rates in a taxable account is wasted within an RRSP. And the dividend tax credit is lost.
    b) Income already taxed at top rates in a taxable account (like bond interest) should be prioritized in an RRSP.
    (iv) Your investments in an RRSP grow on a tax-deferred basis - not permanently tax sheltered. So ...
    a) When choosing between contributing to an RRSP vs a TFSA, the TFSA (where profits are tax-free) should be the default choice.
    b) The only important RRSP benefit comes from maximizing the bonus from withdrawals at lower tax rates.
    (v) Most people's marginal tax rate in retirement will be lower than when they were working.
    (vi) You should delay claiming the contribution's tax deduction when you expect your marginal tax rate to be higher in the future. There is no cost to the delay.

    4) The responses from all contributors (except 1) fell within the "Reasons/Excuses People Use To Dismiss" that I had added as an edit to the original post of this thread. There was not one single sentence in this whole thread that referenced any argument made by the SSRN paper - much less identified an error in it logic or math. I can only conclude that the contributors here fall within ... (1) The most common reason is because they simply refuse to read the evidence. Certainly their arguments were the same ones already disproved (even ridiculed) by the paper - but the posts were all oblivious to that reality.

    I was quite confusing why the same contributors who would not read the referenced material in the first post, would choose to 'demand' that I respond to their posts. My 'response' was already available. Why would contributors 'demand' that I provide examples, - when the SSRN paper includes examples, and the spreadsheet referenced proves my my claims for all possible examples?

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  5. #244
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    Quote Originally Posted by leslie View Post
    I was quite confusing why the same contributors who would not read the referenced material in the first post, would choose to 'demand' that I respond to their posts. My 'response' was already available. Why would contributors 'demand' that I provide examples, - when the SSRN paper includes examples, and the spreadsheet referenced proves my my claims for all possible examples?
    Well, only for some possible examples. But you did not seem to want to address that or even consider it, did you? Yes, I took a look at your website.

    Despite some disagreements, it's clear you've put a lot of work into this topic. What is your intentions with all this? Are you in the industry, is this your career? Are you a writer or advisor? Or just... obsessed? There must be a good 300+hrs of work in this thread and your website alone, not to mention your other threads about RRSP.

    Now that RRSP season is over, perhaps you'd care to join in some other discussions around here.

  6. #245
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    Quote Originally Posted by leslie View Post
    MY LAST POST:

    This year's RRSP season is now over. I created this thread to document a number of things.

    1) There were 54 articles published in the webmedia - that I had issues with. There were even more with the innocuous repetitions of the account's rules/mechanics, and the generally accepted advice "to use a TFSA in preference when your tax rate is low". Why? Is this business so very, very, very important to the account providers, that they drive this agenda? I appreciate that these accounts are wonderfully 'sticky' because they are so hard to move to another provider, but really? On-line papers have whole sections of articles just for RRSP stuff.

    2) Not ONE of the articles clearly identified the RRSP's main benefit - its permanent sheltering of profits from tax. The 2 articles by Chevreau (#201 and #222) came closest. But even there he wimped out and failed to make the necessary clarification that ..."Profits are NOT taxed on withdrawal". This explicit statement is necessary because most readers are used to being told in one paragraph how profits are sheltered IN THE ACCOUNT, only to be told later than they are taxed on withdrawal. I doubt there was even ONE reader of those posts who recognized any difference from the generally-accepted doctrine.

    3) The typical false advice that has been given for decades was repeated this year.
    (i) The contribution credit is a benefit. So ...
    a) The person contributing at the 40% tax bracket gets a larger benefit then the person contributing at the 20% tax bracket.
    b) The tax credit can be compared to benefits from other programs, like the RESP's 20% matching contribution.
    c) You can multiply your benefits by using the tax refund to (eg) make a donation that generates a deduction for charitable donations, or contribute to a TFSA, or paydown debt.
    (ii)) The RRSP's benefit comes from the deferral of taxes. You get to keep the income earned by the contribution credit during the interim.
    (iii) Income earned inside the RRSP is taxed on withdrawal at full tax rates. So ...
    a) Dividend income that would be taxed at lower rates in a taxable account is wasted within an RRSP. And the dividend tax credit is lost.
    b) Income already taxed at top rates in a taxable account (like bond interest) should be prioritized in an RRSP.
    (iv) Your investments in an RRSP grow on a tax-deferred basis - not permanently tax sheltered. So ...
    a) When choosing between contributing to an RRSP vs a TFSA, the TFSA (where profits are tax-free) should be the default choice.
    b) The only important RRSP benefit comes from maximizing the bonus from withdrawals at lower tax rates.
    (v) Most people's marginal tax rate in retirement will be lower than when they were working.
    (vi) You should delay claiming the contribution's tax deduction when you expect your marginal tax rate to be higher in the future. There is no cost to the delay.

    4) The responses from all contributors (except 1) fell within the "Reasons/Excuses People Use To Dismiss" that I had added as an edit to the original post of this thread. There was not one single sentence in this whole thread that referenced any argument made by the SSRN paper - much less identified an error in it logic or math. I can only conclude that the contributors here fall within ... (1) The most common reason is because they simply refuse to read the evidence. Certainly their arguments were the same ones already disproved (even ridiculed) by the paper - but the posts were all oblivious to that reality.

    I was quite confusing why the same contributors who would not read the referenced material in the first post, would choose to 'demand' that I respond to their posts. My 'response' was already available. Why would contributors 'demand' that I provide examples, - when the SSRN paper includes examples, and the spreadsheet referenced proves my my claims for all possible examples?
    I believe several posters disagree with many of the things you have said. I am in that group, and I did read your paper.

    However I thank you for your perspectives which are different from most. I didn't learn anything new about the RRSP, but I suppose I was exposed to another way to look at it. A confusing way, but yeah.

  7. #246
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    NEW #56: Leslie in CMF
    This post wrongly states that "This year's RRSP season is now over". But there is no RRSP season. You can contribute at any time through the year subject to your current deduction limit.
    The "RRSP season" has been created, marketed and promoted by banks and financial institutions to remind you of the final cutoff for contributions that can be claimed in the previous tax year and to guilt you into believing that you are financially negligent if you do not contribute (preferably with them) before the "season" is over.
    But your contribution room is not lost and you may in fact be better off contributing and claiming it in a future tax year depending on your income and financial circumstances.
    It may also make sense to contribute early the prior year because of the compounding of that extra year of growth over many years.

    So at the risk of being ridiculed or judged dimwitted by at least one poster on this thread, I am suggesting that it is not possible to be unequivocal when expressing an opinion or a mathematical proof regarding the merits or shortcomings of RRSP's and their seasons.

    P.S. This post also corrects a counting error in the thread that would otherwise consider this to be new post #55.

  8. #247
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    Read the paper and the website.

    I don't know if it's because I'm new to Canada, or whether my math is weak, but I'm left totally confused.

    So according to Leslie there's bad advice given concerning RRSPs, but I couldn't determine what I am meant to do about it. Maybe it's the lack of case studies or examples, I don't know, but I'm none-the-wiser.

  9. #248
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    Quote Originally Posted by FI40 View Post
    I believe several posters disagree with many of the things you have said. I am in that group, and I did read your paper.

    However I thank you for your perspectives which are different from most. I didn't learn anything new about the RRSP, but I suppose I was exposed to another way to look at it. A confusing way, but yeah.
    That basically sums up my feelings. I don't see anything "wrong" with the math on either side of the argument, but for a small percentage of the population leslie's perspective must be an easier way of looking at it. I don't think picking apart internet articles adds anything to leslie's case though.

  10. #249
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    I think that the value of an RRSP is very much dependent on one's own personal financial situtation and retirement plan. Many of the articles that we have read make sweeping generalities or caution the reader that they need to do some work because your mileage will vary depending on circumstances.

    One thing I do see is that the financial institutions do push them but only pay passing attention to the clients needs or costs. But little attention seems to be paid to three aspects. The first is obvious...spousal vs regular.

    The second is the fund itself and more specifically the MER. The people at the bank have always pushed us toward their high MER offerings. Just one reason why we no longer deal with the bank for investment advice. Their advice seems to center on what is good for the bank.

    The third is type of funds. We use our RSP for interest and income generating investments. We use non registered vehicles for investments that are directed toward capital gains. The reason is simple...capital gains in a non registered account are taxed at half of what an interest/income return would be taxed at.

    Shovelling money into an RSP to obtain a tax refund, WITHOUT consideration to one's current and anticipated financial situation (and other investment vehicles such as TSFA) or without regard to the investment or cost of the investment is never a good thing. Unfortunately I suspect this is the norm rather than the exception.

    I suspect many people spend more time buying a television than they do understanding and directing their RSP's etc. I place no blame on the authors or these articles. The blames lies with those who are too lazy, disinterested, or distracted to put a very small effort into their personal financial well being.

    Last edited by ian; 2017-01-15 at 12:33 PM.

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