# You're richer than you think (RRSP)



## james4beach (Nov 15, 2012)

I've been recently mulling over the way I look at my personal balance sheet and net worth.

I have a list of all accounts, investments and liabilities and I sum them all up and say "my net worth is X". In this equation I have 89K in RRSP. That single item is a pretty big part of my net worth.

But is that the wrong way to look at it? Every other item on my balance sheet is a post-tax value. The potential problem I see with including RRSP at full value is that if you look at a one year difference (as I have been doing), you say things like: "my net worth is up 46K from a year ago".

Now, I'm finding that these one year comparisons have been giving me the wrong idea about my actual net worth increase. If I make a huge RRSP contribution one year, instead of taking the after-tax value in a non-registered account, _that inflates my idea of my total net worth._ For the sake of consistency and comparisons over time, wouldn't it be better to value the RRSP accounts at some after-tax estimate?

What do you think about this? Perhaps value the RRSP items at 80% in the net worth calculation?


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## GoldStone (Mar 6, 2011)

The title of the thread sounds wrong. You are less rich than you think.

Your 80% number seems about right if you expect to have a post-retirement income of ~$45K or less. $45K attracts 20% marginal tax rate in ON and BC.


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## james4beach (Nov 15, 2012)

Right: you're less rich than you think 

Do others do this, though? Valuing the RRSP at less than face value?


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## GoldStone (Mar 6, 2011)

Sure.

http://www.finiki.org/wiki/Tax-efficient_investing#Tax-adjusted_asset_allocation


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## FI40 (Apr 6, 2015)

Absolutely, I think you are right that your net worth estimate is optimistic.

More interesting (to me anyway) is that not only your net worth is wrong, but if you follow a rigid asset allocation for your total portfolio (like 50/50 stocks/bonds for instance) and keep different asset classes in different accounts, then probably your _asset allocation_ isn't what you think it is either.

For instance, someone with 50k in stocks in TFSA and 50k in bonds in an RRSP...doesn't have a 50/50 asset allocation, assuming when they withdraw they will have a nonzero tax rate.

EDIT: GoldStone beat me to it. I had never heard of "Tax adjusted asset allocation" before, and hadn't thought of it myself until last week.


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## GoldStone (Mar 6, 2011)

US perspective:

https://www.bogleheads.org/wiki/Tax-adjusted_asset_allocation


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## OnlyMyOpinion (Sep 1, 2013)

No. I'd just consider the rollup to be before tax and move on. 
Otherwise, don't forget to consider the future tax liability of your unrealized capital gains and interest income, etc.


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## james4beach (Nov 15, 2012)

OnlyMyOpinion, that's a good point too. If you start converting everything to after-tax then there are all those cap gains and interest income to adjust too


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## GoldStone (Mar 6, 2011)

I am similar to OMO. I don't do these adjustments.

As I mentioned many times before, my retirement planning process is really simple.

1. Specify the desired retirement income before tax.
2. Specify the desired withdrawal rate.
3. Divide #1 by #2. This is how much I need to save.

Done.


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## james4beach (Nov 15, 2012)

OnlyMyOpinion said:


> No. I'd just consider the rollup to be before tax and move on.
> Otherwise, don't forget to consider the future tax liability of your unrealized capital gains and interest income, etc.


Here's how I started down this rabbit hole. OnlyMyOpinion and others, I'd love your advice on how to reason this.

I used to work in Ontario, then I moved to the US for my new job. One of the puzzles for me has been: why is my net worth growing more slowly at my new job even though my savings rate is now higher? I eventually narrowed it down: those years in Ontario I was making huge RRSP deductions and deferring lots of tax. Now, in contrast, I'm not deferring much (because I can't).

My problem isn't so much the total number, but the rate of change. I want to compare over time: am I better off or worse off than before? *Is this job in the US worth it?* Looking at the net worth history, my first thought was: this job isn't worth it because I'm not growing my net worth as fast as before. But it turns out those tax deferrals were warping that comparison.

Do you see my dilemma? Is there a way I can approach this that lets me draw useful conclusions, without letting a rapidly growing RRSP fool me?


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## cainvest (May 1, 2013)

I mark my RRSP value down by 25% as like to see it in after tax dollars.


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## steve41 (Apr 18, 2009)

Chrissakes..... the only way to measure your financial well being is to measure the after tax (spending) income you will attain over time. It is a complex determination involving tax (the T1 formulation) including clawbacks, surtaxes and credits.... this is not spreadsheet territory!!!!


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## james4beach (Nov 15, 2012)

steve: yes, after doing the tax return, it's pretty clear what my immediate income is. But let's say that in doing that, I just put 20K into my RRSP... that inflates my "after tax income". I've boosted my income today in exchange for a tax liability in the future.

The problem, I think, is that if I just look at my after tax income this isn't the full story.


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## steve41 (Apr 18, 2009)

After tax income (year over year) out to some horizon age, pv-ed..... is the only story I can think of, apart from the estate I might leave (after tax of course).


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## slacker (Mar 8, 2010)

Don't forget to estimate the cap gain tax you will have had on your non-registered accounts. As well as commission, and other closing fees for when you see your house.

I don't do it because I'm lazy.


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## My Own Advisor (Sep 24, 2012)

I don't think this is rabbit hole. You absolutely need to think about your assets after tax; what you actually own; just like owning most of your home but still having a mortgage. If you have a mortgage, that's a liability and it's something you don't own. Taxes are a form of liabilities. Income taxes to be paid (in the near future) are reported as current liabilities in accounting.


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## OnlyMyOpinion (Sep 1, 2013)

I agree, a mortgage, a drawn LOC, any debts you have, all need to be subtracted from your assets.

Maybe we are on different pages re/ using btax versus atax. During accumulation, I am saving as much as my circumstances allow, and just tracking the growth of my accounts year to year, and perhaps comparing them to a benchmark rate of return, all btax. 

If I tried to report my accumulating assets year to year on an atax basis, I would have a long list of crystal ball assumptions to track as well that wouldn't really add to what I'm trying to do. In fact they would just confuse my increasingly feeble mind. 

Now, when I'm trying to determine what level of income those various accounts will provide - then life gets complicated and I start thinking about the tax liability of my RRSP or RRIF income, my pension credit, crystalizing capital gains optimally, dividend gross up and OAS clawback, etc. My approach may bring a shudder to the accounting crowd out there, but it has worked for me and I can understand it.


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## OnlyMyOpinion (Sep 1, 2013)

james4beach said:


> ...
> I used to work in Ontario, then I moved to the US for my new job. One of the puzzles for me has been: why is my net worth growing more slowly at my new job even though my savings rate is now higher? I eventually narrowed it down: those years in Ontario I was making huge RRSP deductions and deferring lots of tax. Now, in contrast, I'm not deferring much (because I can't).
> My problem isn't so much the total number, but the rate of change. I want to compare over time: am I better off or worse off than before? *Is this job in the US worth it?* Looking at the net worth history, my first thought was: this job isn't worth it because I'm not growing my net worth as fast as before. But it turns out those tax deferrals were warping that comparison.
> Do you see my dilemma? Is there a way I can approach this that lets me draw useful conclusions, without letting a rapidly growing RRSP fool me?


If I'm interpreting correctly, the cause is not yet apparent to me:
1. I'm tracking in $Cdn
1. My net worth is not growing as quickly year-over-year as it did when I lived in Ontario
2. This is in spite of the fact that I am saving more of my after-tax income on an absolute $Cdn basis
3. While my after-tax income is less (because I don't have the tax deferral generated by my large annual RRSP contribution), I am still saving more (per 2.)
4. The reduced growth of my net worth is not a result of poorer returns (and the recent $US>$Cdn exchange rate should provide additional uplift if I'm crystalizing my savings in $Cdn)


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## peterk (May 16, 2010)

I don't see any need to make adjustments now James. You are young and that money isn't going anywhere, and shouldn't make any difference to your investment strategy when you have another 30 years before that tax reality hits. 

I would not be messing with your 50/50 AA (or whatever, 10/90?) for your investments NOW based on some indeterminable liability 3 decades in the future.

As slacker said, you gotta compare after tax unregistered as well to really be fair. Are you estimating 30 years worth of dividends and capital gains tax with the appropriate churning rate and tax rates (what if you move provinces or countries?).

To really do it properly you'd have to project the comparison between both accounts out 30 years with all your investment taxes considered, then another 30 years from age 65-95 as you withdraw your RRIF, all with precisely accurate assumptions about ROR, income levels and the exact tax code some 0-60 years from now (don't forget to include prime minister Ella-Grace Trudeau's tax reforms of 2057). Then you'd discount all those future cashflows back to NPV and compare to get your "current net worth"? Ha! I doubt it...

In the end, does it really matter? to whom, and why? Just add up your money, be conscious that some day you'll have to pay taxes of various degrees on various financial assets, and keep on truckin'.


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## steve41 (Apr 18, 2009)

Taxes change (certainly the brackets are indexed) and rates change over time, but wouldn't it be useful to forecast all these cashflows... salary, cpp/oas/pension, loan pmts, selling the summer place, and marrying them up with our investment cash flows (+ & -) to come up with an after tax estimate of beer, gas and grocery consumption over time, to get a feel for things? Just asking.


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## wendi1 (Oct 2, 2013)

Too many assumptions - strictly speaking, each assumption increases the risk associated with your model. More details do not necessarily increase the accuracy of your model, if they are accompanied by more assumptions.


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## humble_pie (Jun 7, 2009)

steve41 said:


> Taxes change (certainly the brackets are indexed) and rates change over time, but wouldn't it be useful to forecast all these cashflows... salary, cpp/oas/pension, loan pmts, selling the summer place, and marrying them up with our investment cash flows (+ & -) to come up with an after tax estimate of beer, gas and grocery consumption over time, to get a feel for things? Just asking.



thank goodness somebody else sees this as another dry-as-dust joke thread.

definitely deduct all future costs of groceries, housing, clothing, travel, sports, entertainment. Plus beer as steve41 says.

i forgot the kids, OMG the cost of kids! now those are costs that'll give a real feel for things.

bref, it's not worth working. That paycheque is spent already, even if you save it. Much smarter to go home to mammy & pappy, see if they kept the crib.


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## steve41 (Apr 18, 2009)

Most.... loan details, salary, pensions, the current balance in RSP/TFS/Nonreg, real estate holdings are pretty quantifiable. Taxes going forward, as well. Ever since the tax brackets were indexed, the tax formulation has been stable (except for this year). Ditto the inflation rate. The only real uncertainty is the market's ROR. So run your projection out at a lo-med-high rate..... it is not rocket science.

Unless you take the 'dartboard' approach, that is.


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## james4beach (Nov 15, 2012)

Interesting. Summarizing what I'm hearing here: one school of thought is that there's way too much uncertainty going out 30 years (in my case) and this does not warrant changing any approach. Too much uncertainty, too many unknowns down the line.

The other school of thought (as steve41 is saying) - these things are relatively quantifiable and it can be projected outward to some degree, even if it's a crude model.


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## james4beach (Nov 15, 2012)

OnlyMyOpinion said:


> If I'm interpreting correctly, the cause is not yet apparent to me:
> 1. I'm tracking in $Cdn
> 1. My net worth is not growing as quickly year-over-year as it did when I lived in Ontario
> 2. This is in spite of the fact that I am saving more of my after-tax income on an absolute $Cdn basis
> ...


Maybe I should revisit and examine whether #2 and #3 are true. Here's the data on employment and total taxes paid

Ontario: gross wages 97.7 - taxes 20.4 = net pay 77.3 CAD _(tax deferred)_
USA: gross wages 101.5 - taxes 34.3 = net pay 67.2 USD

And my expenses are all in USD now so the picture isn't complete yet. Using CAD and 1.3 avg FX rate I get:

(a) Ontario: 77.3 net income - 32.2 expenses = 45.1 savings (old)
(b) USA: 67.2 USD net income - 37.4 USD expenses = 29.8 USD savings = *38.7 CAD savings (new)*

The reason I think the RRSP deferral is the key difference is here: the Ontario net pay would have been about 5K lower (??) without the tax deferral. This would reduce (a) by 5, giving savings of 40.1 K. Wouldn't that be a more fair apples-to-apples comparison?

Again my real goal here is to figure out whether I'm coming out ahead by working in the US. Maybe I took us off track by focusing on RRSPs upthread -- what I'm really trying to figure out is the (a) vs (b) comparison

Does the following work? This shows nearly an equal result of the two

(a) Ontario: 77.3 net income - 32.2 expenses = 45.1 savings, but -5 tax deferral = 40.1 savings
(b) USA: 67.2 USD net income - 37.4 USD expenses = 29.8 USD savings = 38.7 CAD savings


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## peterk (May 16, 2010)

Sure you can do some calculations for fun. I got a bazillion spreadsheets with tons of stuff calculating god knows what, making all kinds of projections of varying degrees. Making a major life decision though, like moving between countries, based on what your taxes from retirement accounts are going to like 30 years from now...I dunno.

steve41 - now you're saying "it is not rocket science"? You're the one on here that scolds everyone for making simplified models and spreadsheets, insisting that modeling retirement funds accurately takes advanced algorithms, "not spreadsheet territory" I think you prescribe. Which one is it?

James - It sounds to me like you're regretting the move to the US because 1) taxes were higher than you had first though, and 2) cost of living is much higher than you first though. Does the amount of deferred tax on profits from a small % of you income directed towards retirement accounts really factor into your equation all that much? I would think not, a trifling consideration, if one at all. Don't they have IRAs or something in the US that is the same as a RRSP anyways, once you're a full blown citizen or resident or something?


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## james4beach (Nov 15, 2012)

peterk, we might have posted at the same time. See the above message about the income, tax, and cost of living comparison.

I'm very open to ideas on how I might interpret those numbers from my last post. Can I draw any conclusions?


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## peterk (May 16, 2010)

james4beach said:


> The reason I think the RRSP deferral is the key difference is here: the Ontario net pay would have been about 5K lower (??) without the tax deferral. This would reduce (a) by 5, giving savings of 40.1 K. Wouldn't that be a more fair apples-to-apples comparison?


Yes I think so. Easier just to assume that the RRSP offers no benefit. Its tax-deferral on profits from a 5k refund doesn't amount to much on a per year basis to your "savings" anyways when all is said and done.

Edit: Especially when compared to a non-registered account, instead of a TFSA.


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## steve41 (Apr 18, 2009)

peterk said:


> steve41 - now you're saying "it is not rocket science"? You're the one on here that scolds everyone for making simplified models and spreadsheets, insisting that modeling retirement funds accurately takes advanced algorithms, "not spreadsheet territory" I think you prescribe. Which one is it?


 How on earth did that 'not' get in there?:stupid:


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## james4beach (Nov 15, 2012)

peterk said:


> James - It sounds to me like you're regretting the move to the US because 1) taxes were higher than you had first though, and 2) cost of living is much higher than you first though.


Yes. Even if I had not taken any RRSP deduction, taxes while in Ontario were 26%. Here on west coast USA it's a whopping 34%. On top of that, my living expenses are now higher. All of that reduces the net savings, and only the high USD/CAD makes up for it... barely.


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## james4beach (Nov 15, 2012)

I want to be able to make this comparison so that I can make good decisions about work. I already pushed for (and got) a raise, so the 2016 numbers should look better. The USD/CAD rate becomes an important factor too. My general idea: as long as it's in the ballpark of what I'd make in BC or Ontario, there's no reason to seek any change.

I'm eager to hear other thoughts. I'm generally pretty good with numbers but this whole thing has left me feeling confused.


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## NorthernRaven (Aug 4, 2010)

steve41 said:


> Chrissakes..... the only way to measure your financial well being is to measure the after tax (spending) income you will attain over time. It is a complex determination involving tax (the T1 formulation) including clawbacks, surtaxes and credits.... this is not spreadsheet territory!!!!


Awhile ago I cobbled up a spreadsheet with 1 row per year. It takes starting values for RRSP, TFSA and unreg, does a % increase on them, and various other things, with the ending values feeding in to the next year/row. Before age 60 it doesn't try and deal with salary/finances, just a given amount of after-tax dollars increasing the unreg amount, but it does transfer the TFSA limit from unreg, and optionally RRSP based on room at current salary. 

At 60 it starts calculating income, from DB pension and eventually CPP/OAS. I've written a little VBA macro to do a quick and dirty tax calculation given age, regular and investment income (for my situation I assume capgain/dividend rates as equal) for the pension and non-reg earnings - it also applies the pension and age credits). For a single, childless person this is a good-enough first approximation. At 71 it subtracts out the RRIF withdrawal rates from RRSP and puts that into income. All of this balances against a set requirement for after-tax consumed dollars, and reduces assets by the shortfall. I run everything in current dollars with real, not nominal returns, since almost everything in my case has inflation-adjustments.

Not that I believe the detailed numbers, but it is a handy way to see the rough flows as you tweak various things. The online retirement calculators I've seen tend not to provide access to the detailed results of their calculations, or can't be tweaked enough. On the other hand, as a programmer, working in Excel's VBA makes me queasy, and I'm too lazy to do it in something else and format output. This post-retirement calculator is interesting, but you can't constrain it to a given after-tax income, and like most it doesn't handle the bridge amounts of DB pensions well. Anyone know of a free, geeky-detailed data-saving retirement calc, ideally something that lets you set up arbitrary shocks like "buy $100K of annuities at age 75"? Rats, I thought not...


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## steve41 (Apr 18, 2009)

NorthernRaven said:


> Anyone know of a free, geeky-detailed data-saving retirement calc, ideally something that lets you set up arbitrary shocks like "buy $100K of annuities at age 75"? Rats, I thought not...


"Free"? Sorry. Otherwise.... well....


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## NorthernRaven (Aug 4, 2010)

steve41 said:


> "Free"? Sorry. Otherwise.... well....


Even if I wasn't a cheapskate, I'm also a Mac user...


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## steve41 (Apr 18, 2009)

I tend to approach the problem as a generic cash flow projection, without the concept called retirement age. There are simply times in your life when there is more money coming in the door than you can spend and periods when you need to spend. What about working for several more years then taking a 3 year sabbitical? When are you retired, after the sabbitical starts, or when you go into full retirement.


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## steve41 (Apr 18, 2009)

NorthernRaven said:


> Even if I wasn't a cheapskate, I'm also a Mac user...


If you have VMWare or VirtualBox on your Mac. you would be able to purchase for $100. Keeping it current with tax changes... $50 per year.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... My general idea: as long as it's in the ballpark of what I'd make in BC or Ontario, there's no reason to seek any change.
> 
> I'm eager to hear other thoughts. I'm generally pretty good with numbers but this whole thing has left me feeling confused.


I thought you'd left Ontario because you couldn't find suitable work?
Has the job market or opportunities in BC changed this?


As for what to value the RRSP at ... do you have in mind what the retirement income is going to be like?


Cheers


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> I thought you'd left Ontario because you couldn't find suitable work?
> Has the job market or opportunities in BC changed this?


Hi Eclectic, it's true that I originally left Ontario because I couldn't find the kind of work I wanted at the salary I wanted. During my job hunt, I had an offer for 85K in Ontario but I chose this US job at 100K instead. I don't know what the current job market is like... maybe I'm throwing around way too many hypotheticals here. I don't know of any directly comparable opportunity for me in Ontario/BC right now. I just suspect they exist based on where my friends are working.

One never knows what opportunities might pop up though. I'm happy with my current company, and the work has been rewarding. However if I ran the numbers and saw that I was worse off than five years ago, then I think it would make sense to seek an improvement. That could mean seeking a raise or seeking jobs in Canada, closer to my family where I'd have less travel costs and a lower cost of living overall.



> As for what to value the RRSP at ... do you have in mind what the retirement income is going to be like?


That's 30+ years ahead in the future and I have no idea, honestly. In today's dollars, I feel like I have a very good standard of living at 37K. It's non-stop fun and travel. Let's call it 40K retirement income? That means I need about ... $1.6 million? Keep in mind I'm not able to pay into CPP while working down south.


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## pacman (Sep 6, 2009)

steve41 said:


> If you have VMWare or VirtualBox on your Mac. you would be able to purchase for $100. Keeping it current with tax changes... $50 per year.


I have to put a plug in for Steve here. I've used his software for 5+ years now. I'm also a big spreadsheet user, but there is no comparison. I don't understand why we are trying to nickel and dime here, when talking about huge retirement-related decisions. Yes, we have to make assumptions, but as Steve has noted, many are pretty established/stable. Let's make some basic assumptions and go from there. This is certainly better than throwing up our hands and saying that we shouldn't do any retirement calculations because there are just too many unknowns. Steve's software is very affordable (I'm sure there are others also), so there is no excuse for any of us to not do our own due diligence for our retirement planning.


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> Has the job market or opportunities in BC changed this?


Just one data point, I was talking with a friend in BC tonight. He was my classmate and our careers have tracked pretty closely. He's making 89K in B.C. which gives 68.5K net. Very comparable to my 102K gross = 68K net.



pacman said:


> I have to put a plug in for Steve here. I've used his software for 5+ years now.


Where can we get Steve's software?

Regarding the software and Mac ownership... definitely use VirtualBox. I run this both on Linux and Mac, and it can virtualize any operating system. You'll still have to buy a Windows license though.


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## pacman (Sep 6, 2009)

Where can we get Steve's software?


http://www.fimetrics.com/


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## peterk (May 16, 2010)

Steve, if I'm trying (as a 20-something) to determine the optimal asset location for stocks/Bonds/GIC/Cash/Foreign stocks amongst my TFSA/RRSP/Unregistered accounts, to give me the highest after tax cashflow starting in early retirement in my 40s (and continuing until 95, hopefully), is your software for me? 

I want to enter some RoR assumptions for each of those asset classes, and play around varying their percentage distribution among the three different account types (at my set asset allocation), and maximize my after tax retirement cashflow, considering both pre age 65 retirement cashflow and post age 65 retirement cashflow.

What does the "5 files maximum mean"? That doesn't preclude doing more than 5 "runs" with different RoR, allocation, income level assumptions, does it?


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## steve41 (Apr 18, 2009)

The 5 files max refers to the number of 'client' files you can create. Once created, you can run as many scenarios as you choose. Also, you can't delete a file and substitute another in its place for obvious reasons.

As far as changing the asset mix, you can goose around with the rrsp/nonreg/tfsa mix to a great extent. RRIFmetic is not overly investo-centric, rather it concentrates on tax-accuracy and needs-driven math.


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## peterk (May 16, 2010)

Thanks Steve!



steve41 said:


> The 5 files max refers to the number of 'client' files you can create. Once created, you can run as many scenarios as you choose. Also, you can't delete a file and substitute another in its place for obvious reasons.
> 
> As far as changing the asset mix, *you can goose around with the rrsp/nonreg/tfsa mix to a great extent. RRIFmetic is not overly investo-centric*, rather it concentrates on tax-accuracy and needs-driven math.


Hmm, So can I apply individual, different rates of return to the RRSP/nonreg/TFSA to represent the rates of return one would expect from Stocks, Bonds, Cash? and also account for the dividend, income and capital gains taxes (with a churning rate, or perhaps discreet capital gains) that the unregistered account experiences? Or is that beyond the scope of your reverse-tax needs-driven algorithm?

Ultimately I'm trying maximize after-inflation, after-tax cashflow by ensuring the asset location now and for the next few decades is optimized for that eventual future cashflow requirement.

It's easy enough (still kind of hard) for me to calculate the FV of the RRSP/nonreg/TFSA based on some assumptions about rates of return, income, and marginal tax rates. It's another thing entirely to model the optimized FV that leads to the optimized future cash flow from those accounts, and especially taking into consideration the various pension influences that are a factor past 65.


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## steve41 (Apr 18, 2009)

Yes, you can differentiate rors for each investment type. (over time also).


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## lonewolf (Jun 12, 2012)

Not as rich as you think either do to debt being sky high propping up the financial markets. Remove the debt from the market the values on the screen are not there. There is no way everyone can eat the cake. Everyone decides to eat cake & debt will take the cake away.


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## Brian K (Jan 29, 2011)

I retired in 2009 and since then have tracked my assets and expenses. Fortunately, income is greater than expenses. I did include the full value of my RRSP's in my assets (and still do) but since retiring and drawing income from my RRSP's, I have seen $50K turn into $35K immediately and I don't get anything back from a tax perspective. Yeah yeah I'm "lucky' that my income is pretty decent but adding that $50K, which I withdraw yearly as T4 type income, and getting taxed as hard as that is, is not pleasant especially when it is earning dividend and capital gains income (within the RRPS). I know there are lots of people who love RRSP's and many poo-poo me for wanting to collapse the RRSP prior to 71, but if I had to do it again, I would have just saved the $$ in a regular investment account then at least I'd know what I had and not have to bend over each year as I do now. Yeah I got a yearly tax free increase within the RRSP (when it increased) but so does my TFSA which to me is a MUCH preferred way to save for retirement. And I always made more money by saving it, than by my 'shrewd' investments - but I digress. To sum up - personally I'd rather have the $$ in non registered investments, pay the dividend and capital tax along the way and know what I have. 
My 2 cents... (and taxed at the highest marginal rate isn't 2 cents anymore).
However - better to save in what ever vehicle you can rather than spend it all along the way and hope you have enough when you need it.


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## james4beach (Nov 15, 2012)

Brian K said:


> if I had to do it again, I would have just saved the $$ in a regular investment account then at least I'd know what I had and not have to bend over each year as I do now. Yeah I got a yearly tax free increase within the RRSP (when it increased) but so does my TFSA which to me is a MUCH preferred way to save for retirement.


Great observations, thanks!



> *And I always made more money by saving it, than by my 'shrewd' investments* - but I digress. To sum up - personally I'd rather have the $$ in non registered investments, pay the dividend and capital tax along the way and know what I have.


Thanks for sharing these. This point about savings trumping investments I think is a really important one that isn't obvious to people


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## steve41 (Apr 18, 2009)

> if I had to do it again, I would have just saved the $$ in a regular investment account then at least I'd know what I had and not have to bend over each year as I do now. Yeah I got a yearly tax free increase within the RRSP (when it increased) but so does my TFSA which to me is a MUCH preferred way to save for retirement.


Actually, when you do the math this doesn't hold up.


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## LBCfan (Jan 13, 2011)

Brian K said:


> .... To sum up - personally I'd rather have the $$ in non registered investments, pay the dividend and capital tax along the way and know what I have.
> ......


Tell us why you didn't choose that option, you had it.


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## Brian K (Jan 29, 2011)

LBCfan said:


> Tell us why you didn't choose that option, you had it.


Well - because putting money into RRSP's was the thing to do - so I did it. And yes everyone said it was just deferred taxes which I knew. But I thought I'd be in a lower tax bracket when I retired and hopefully might come out ahead tax wise. Not until I retired did I actually feel the full effect of getting RRSP withdrawals taxed as hard as they are and feeling like I'm losing that 30% when my dividends and capital gain income gets much fairer tax treatment. I know others say RRSP's are good to have and to keep them as RRSP then convert into RRIF's at 71 but getting taxed that hard when I "count the RRSP money" as the OP mentioned, feels bad. They are a forced savings for retirement which is good but I didn't have trouble saving anyway. 

And Steve41 - yes I understand your comments about the numbers. It's that for many years, the investments inside the RRSP were Cap Gains and dividends (which are taxed are lower rates) and then the increased $$ comes out as interest income. It just feels bad that's all.


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## none (Jan 15, 2013)

james4beach said:


> Thanks for sharing these. This point about savings trumping investments I think is a really important one that isn't obvious to people


It's not obvious because it's not necessarily true if you invested properly.

What is true, however, is struggling to get MER to ridiculously low levels ie <0.1%. Really, if you're below <0.5% you're doing well and a solid savings rate is more important. I have a decent number of ETFs but I've been using e-series more and more just b/c they are so convenient and easy.


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## james4beach (Nov 15, 2012)

none said:


> It's not obvious because it's not necessarily true if you invested properly.


I agree. But how many investors actually achieve the ideal efficiency of the couch potato portfolio?

When you read CMF it looks pretty clear to me that many people are engaging in a variety of non-index approaches (e.g. loading up on high yield products). Anecdotally I'd say that most of my friends who became interested in investing were trying stock-picking approaches, and that's also going to give them poor results in the long term.


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## Brian K (Jan 29, 2011)

+1 James you hit it right on.

Yes hindsight is really good and those that say you should 'invest properly' must be smarter than the average bear and it's not like I didn't try. And keep in mind that we now have a much wider access to good advice (like CMF) these days. For many years, thinking I was doing the right thing, I relied a 'full service' broker at RBC who really made more money for himself/them than for me and there were lots of excuses as to why the returns weren't there, but there weren't many options that I knew about and continued to rely on their advice. Because of these poor returns, I also tried a "Professionally Managed" account at CIBC and after about a year and a half, when reviewing the reported 10% returns, I asked her to explain the math when the balance was less than it was a year and a half ago. She looked embarrassed said she couldn't - so that ended that. I then opened a discount brokerage account which was becoming more widely available, but it seemed like over the years there weren't many good ideas and it seemed that if I bought a stock, it would probably go down.

Low MER ETF's paying dividends weren't really widely available - or at least I didn't know about them. And I was working a lot and raising a family - and with that I didn't have a lot of time to learn about investing. An excuse perhaps, but the way it was so thus my comment about doing better saving than my investing.


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## kcowan (Jul 1, 2010)

james4beach said:


> Anecdotal but I'd say that most of my friends who became interested in investing were trying stock-picking approaches, and that's also going to give them poor results in the long term.


People will do what they like to do. Some will come out ahead and others not so much. But they will all be satisfied that they did not pay an FA for below standard results...


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## steve41 (Apr 18, 2009)

Brian K said:


> And Steve41 - yes I understand your comments about the numbers. It's that for many years, the investments inside the RRSP were Cap Gains and dividends (which are taxed are lower rates) and then the increased $$ comes out as interest income. It just feels bad that's all.


 It still doesn't matter.


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## londoncalling (Sep 17, 2011)

kcowan said:


> People will do what they like to do. Some will come out ahead and others not so much. But they will all be satisfied that they did not pay an FA for below standard results...


+1

I have taken a dividend investing approach and some years I outperform others I trail. My costs are really low with $5 a trade and minimal buys/sells per year. Either way I am not being fleeced by some salesman. Would a couch potato get me better returns for less $? Potentially, even probably. The data on my portfolio doesn't have 20-30 years to do a fair comparison and by the time it does it will be too late for me to go back and make changes. DIY keeps me engaged in my finances (focused on increased savings more than increased returns as per above) Thanks Keith for pointing out what is a very important part of becoming richer than you think.

cheers


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## PharmD (Dec 21, 2011)

steve41 said:


> It still doesn't matter.


Are there any situations that you would say that it is better to not max out a RRSP and use a non-registered account other than perhaps if you have low income right now? In particular I am interested in if it is ever really worth it to try to avoid OAS clawback, large forced withdrawls, or a big tax bill for the estate by using non-registered accounts.


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## steve41 (Apr 18, 2009)

Yes.... most definitely. If you choose to max your RRSP and you subsequantly die soon after retirement, then your estate will suffer. On the other hand, if you manage to make it out to a reasonably ripe old age, the RRSP option will turn out to be the preferred one. It is an actuarial problem.


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