# How Aggressive are you in your RRSP??



## warp (Sep 4, 2010)

There are two trains of thought about RRPS's and RRIF's

The first says that you should be conservative because you will need the money in retirement.

The second says that some or much of the funds in registered accounts will end up being lost as taxes anyway , so you should be very agressive since you are investing with the "governments money"

My personal position puts me at odds, since my major problem with my RRSP is trying to get it out without paying much of the withdrawls in taxes.

I am 56, so I have 15 years till RRIF time, ( if I last that long)

My RRSP has grown over the years, but I really do not need the money to fund my retirement, since I always live within my means, and basically have everything I need,

All thoughts, and ideas, etc, will be welcome


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## I'm Howard (Oct 13, 2010)

My Dad, at 91, still has a large RRIF residual, a very large Investment Portfolio, and does not spend.

Most people do investing all wrong, they invest on their time horizon, then wake up to the reality that they are just sitting on a large future Inheritance for some one, and should thus have taken a longer term view.

The other question is whether the return OF rather than ON is more imortant and you keep the bulk in low risk Div Stocks and Corporate Bonds.

I would suggest if you just want to play a bit, buy some Molycorp or other Rare Earths, but that is for the truly aggressive.


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## Jon_Snow (May 20, 2009)

Not aggressive at all... strictly GIC's. I have a DB pension, ample savings, future sizable inheritance... RRSP's simply won't be the cornerstone of my retirement.


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## funinagg (Jun 10, 2010)

well as always it depends on your goal.

what will be done (travel, gifts to family, charity, luxury) with this money? and what is the minimum and maximum money required for that?

this range determines how much risk you should take.


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## DavidJD (Sep 27, 2009)

Should not be an either, or, decision. Mix it as comfortable as you are with risk. You need to decide WHAT is risky (too risky) and how much to risk to appease your concern about adequate growth given the time you forecast.

No one can do this for you.

I am not yet 40 so I am still pretty aggressive - although this is changing slowly and will become more conservative, gradually.


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## MoneyGal (Apr 24, 2009)

Very. I'm a long way from retirement and my human capital is a like a huge bond that will produce steady, low-risk returns until it is finally depleted.


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## the-royal-mail (Dec 11, 2009)

I am very aggressive with this money. Esp in the past year, this has produced excellent results. Some people calling it chasing returns, which I see no problem with. Keep funds as long as they perform, if not, switch to something else. At this stage of my life, I continue to use the RRSP money for my riskiest investments, and TFSA for the safest ones. This will of course change from time to time.

MG: Are you not getting my PM replies?


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## osc (Oct 17, 2009)

RRSPs are not aggressive by definition as is difficult to leverage in an RRSP. The only leverage method in RRSP that I know is to buy naked calls or puts, but that is a losing proposition over long term.
I am not aggressive. I buy ETFs on stock indexes and sell covered calls on them. Rarely I'd buy a call or a put in VIX when they are cheaper than I think they should be.


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## steve41 (Apr 18, 2009)

I haven't done one of these for a while, but here goes...

A 50 year old with $200K in his RRSP, earns $75,000 per year, and decides he will change his future savings regime and direct all future savings outside his RRSP to a taxable (nonreg taxed as dividends) account.

Is this a good idea?

The results indicate that it is not. The fact is that the income tax trajectory appears to be higher for the RRSP option, but that when you examine the present value of the two tax streams, the RRSP option results in a lower tax PV than the nonreg option.

The example shows that for a constant aftertax income forced at $42,000, the RRSP strategy outperforms the nonreg strategy by a significant amount.

Tax, and its behaviour over time is an integral part of this determination, and mustn't be approximated with an average/marginal tax rate.

RRSP strategy

nonreg strategy

tax comparison


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## slacker (Mar 8, 2010)

You don't need the money for retirement?

Have you considered withdrawing that money that you don't need and spending it on something worthwhile? Spend it on yourself, your loved ones, or charity.


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## lister (Apr 3, 2009)

Fairly aggressive. I haven't done much trading in my RRSP in 2010 compared to the flurry of activity in 2009 as I have stocks that I'm waiting on. Similar stocks in the RRSP as the TFSA but more modest gains.


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## Belguy (May 24, 2010)

The problem with the system is that you never know how long you are going to live or how much you are going to need to look after yourself in retirement. 

I left my job 16 years ago and have not tapped into my RRSP yet and am 67 years old. I live very, no extremely, frugally (am even still on dialup internet) and do not have a chick or a child to leave my fortune to (although I do have two no account brothers--only kidding about the no account part).

On the two extremes, I may not live long enough to use any of this RRSP money myself or I may live long enough to see it dwindle down to little or nothing. How do you ever know? It costs $3000 a MONTH to live in the retirement home that I have my eye on!!!

I am invested 60/40 equity to fixed income and should probably be more like 30/70 given my age but fixed income investments bother me right now with their ultra low returns or chance that they may even drop in value in the case of bond funds.

Looking back, if I were younger and had to do it all over again, I would probably put less in my RRSP and more aggressively invest in my non-registered account but the financial services industry always pushed me to invest the maximum in an RRSP even though everybody's circumstances are different.

A lot of it has to do with whether or not you plan to provide for your heirs when you ultimately croak and find yourself on the other side of the grass.


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## steve41 (Apr 18, 2009)

> I would probably put less in my RRSP and more aggressively invest in my non-registered account but the financial services industry always pushed me to invest the maximum in an RRSP even though everybody's circumstances are different.


 It turns out that for most 'saving for retirement' folks the RRSP affords the best option. Examine that study I posted upthread. It is a no-brainer.... for the same after tax income, you will be able to save more in your RRSP than outside because of the RRSP rebate. Read those PDFs closely.


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## marina628 (Dec 14, 2010)

I just found out five minutes ago I am a a couch potato Option 2 (TD e-Series funds) ,pretty much sums up my portfolio except for them 'risky' banks stocks and my real estate portfolio lol


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## Spidey (May 11, 2009)

I tend to just view my RRSP as part of my entire portfolio. Since, for me, it makes sense to shelter fixed-income from taxes, I tend to place my fixed-income in the registered accounts. For that reason, the RRSPs tend to less aggressive than my non registered accounts. (Although I do hold equities in registered accounts, as well.)


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## warp (Sep 4, 2010)

slacker said:


> You don't need the money for retirement?
> 
> Have you considered withdrawing that money that you don't need and spending it on something worthwhile? Spend it on yourself, your loved ones, or charity.



I'd love to withdraw from my RRSP and spend it, or more likely just give it to my loved ones.......( the ones younger than me, that is)


Thanks for all the replies, but many has missed the jist of my question/dilema

That problem is that taxes must be paid on the withdrawls, and when added to all other income,( investment income in my case), the taxes consumes a large portion of the withdrawl.

That is why I am wondering if its not a bad idea to be very aggressive with the RRSP....then pay the taxes, yet still keep a good chunk of change, even if taxes appaoach 50% of withdrawls.


BELGUY:

You said:
"I left my job 16 years ago and have not tapped into my RRSP yet and am 67 years old. I live very, no extremely, frugally (am even still on dialup internet) and do not have a chick or a child to leave my fortune to (although I do have two no account brothers--only kidding about the no account part)."

This can present a big problem for you and your RRSP funds!
If you pass away without a spouse or a dependent disabled child, ALL the funds in your RRSP/RRIF will be added to your income in the year you die for tax purposes.
If you have sizeable assets in that RRSP/RRIF you can see that on your final tax return, these assets will be taxed at close to 50%!!
(even when you are dead, the govt will screw you!!)

That means the govt will get half, and the other half will go to your loving brothers.
Better that you take some out now, pay the tax now, and live less "frugally" now!

The older I get, the more it bothers the sh*t out of me that I have to go through all this nonsense because of govt regulations and taxes.

Just go to a "FLAT TAX" system..take your share...then LEAVE ME ALONE, to do with MY MONEY as I please!!


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## steve41 (Apr 18, 2009)

This 50% tax rate crap drives me nuts. If you had $150 million in your RRSP, your tax rate would be around 45%, if you have $1.5M in your RRSP, your tax rate would be around 22%. Good luck with your wish for that flat tax system.


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## warp (Sep 4, 2010)

steve41 said:


> This 50% tax rate crap drives me nuts. If you had $150 million in your RRSP, your tax rate would be around 45%, if you have $1.5M in your RRSP, your tax rate would be around 22%. Good luck with your wish for that flat tax system.



In what universe do you live in where your tax rate would be 22% if you had $ 1.5M in your RRSP?????

Better check your math, or get your head around what "marginal tax rates " mean.


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## Sampson (Apr 3, 2009)

How much money would you have made if you had not received the refunds for the original contributions and not received the tax-sheltered growth of those investments?

If you earn more now than you did during your employed years, then yes, you probably should not have been investing monies within the RRSP, but as steve41 points out, ppl's effective tax rates are typically much lower than they realize.


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## warp (Sep 4, 2010)

Granted, taxpayers did receive a tax reduction when contributing, and there has been tax free growth.

My point is that this is all govt "social enginerring"..............forcing you into this plans.....there should always have been a flat tax......then investment earnings on that already taxed income should have been much better tax preferred....= no need for all these registered accounts which come with a million rules.

I am absolutely convinced that govt actuairies have already figured out the death rate etc, how many will die without beneficiaries, and have concluded that they will in fact come out ahead in tax revenue.

That is precisely why Flaherty changed the "income trust" rules
Many trusts were held by seniors in registered accounts.
The govt KNOWS it will get the taxes eventually...but he wanted it NOW, and not leave all that revenue to a future govt.

This is why with my family, everyone over 18 has their TFSA maxed to the hilt each and every year.
RRSP's are used only to lower income to a "lower", and with luck, lowest tax bracket.
Pay the taxes now....put in $ 5K a year, and hopefully NEVER have to worry about taxes on that ever again.

I say "hopefully" , because I do have my worries that a future govt will want to get their hands on all that income earned in TFSA's, and will figure out a way to put their hands into your pocket, as usual.

These guys are worse than herion addicts.


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## Sustainable PF (Nov 5, 2010)

Not very. We're not trying to beat the market.

We employ the couch potato in our RRSP but also purchase US Dividend Stocks as well.


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## steve41 (Apr 18, 2009)

OK.... here is a 65 year old with 1.5M in his RRSP. Going forward, his 'die-broke at 95' projection is shown here
Check page 4 for the effective tax rates.

BTW... he expects full OAS and CPP, and lives in BC.


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## Jungle (Feb 17, 2010)

To answer the ops question, we are about 87% equity in rrsp. We would be 100% equity except the bank sold my wife a non redeemable GIC for her RRSP.


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## warp (Sep 4, 2010)

steve41 said:


> OK.... here is a 65 year old with 1.5M in his RRSP. Going forward, his 'die-broke at 95' projection is shown here
> Check page 4 for the effective tax rates.
> 
> BTW... he expects full OAS and CPP, and lives in BC.



Steve:

I dont have the time right now to read that link fully

Unless Im seeing this wrong,,,I do notice errors immediately.

On page 4 the "effective tax rate" as a percentage of earnings is rife with errors.

Example: 2017 earnings $103,795, tax $32,894, tax rate 26%
unless my math is wrong, this tax rate should read 31.7%

Also this assumes no other income....marginal rates would increase....higher tax rates.

As well look at page 6...under ESTATE

If this guy dies in 2010 at age 65 he will pay $638,009 in taxes!! out of his RRSP 

would you like to give the govt this kind of money??
I sure wouldnt.

I will look this over carefully later. Thanks for the input


Bottom line is that its all a bunch of Bullsh*t that we are forced ino this mess.


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## steve41 (Apr 18, 2009)

Look if your before tax income is 80759 and you pay 17801 in tax, your effective tax rate is 22%. What's so hard about that?


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## warp (Sep 4, 2010)

Steve:

You need to get your head around "marginal tax rates"!
That is : what your tax rate will be on the NEXT dollar of income.

Lets say your income is $80,700 BEFORE you take any RRSP/ RRIF withdrawls.

Any dollars you take as withdrawls will be be taxed at 40% plus!!

How many people do you know that have $1.5 M, with no other assets or income??

My basic premise in this whole discussion is that we SHOULD NOT have to go through all this bullsh*t, all this calculating, planning , hoping, gambling on how long we might live, suffer thru tax changes every year, paying someone to figure out the tax code, etc etc etc etc.

One flat rate on all income, ( with different inclusion rates), while keeping the basic personal, age , disability, and education deductions solves all this horsesh*t.


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## steve41 (Apr 18, 2009)

I know exactly what marginal tax rates are. I calculate them, but don't report them because they are meaningless. They are embedded in my tax subroutine, but they don't contribute anything. At the end of the day, you pay one big slug of tax. The effective tax rate is all that matters, because it represents real dollars that you send to the tax man. To report that 'my marginal tax rate is 42%' says absolutely nothing about the amount of tax you pay and importantly, the amount of money you get to spend on stuff.

So what if the tax on my last dollar earned is taxed at 42%.... the tax on the first 11K or so is taxed at 0%. So what?

I posted a projection of a 65 yearold with 1.5M in his RRSP, and the actual effective tax rate he would enjoy/suffer out over time. It ranged in the 22-26% range. Have you determined an error in that projection? All you need is a calculator and a T1.

The argument for or against our progressive tax system is above my pay grade. Most countries have such a system, and I don't see it changing anytime soon.


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## Berubeland (Sep 6, 2009)

I am as usual the most aggressive on this board... 

I just sold a bunch of Breakwater Resources Warrants that I bought for 16 cents for 50 cents

Bought HBB.WTs when I noticed that they were trading quite a bit under value. 

Strike Price 12.00 
HBB.UN 12.65
HBB.WT .50

So will make .15 cents each probably more as date of expiration approaches in April and volatility increases. 

Also bought several hundred thousand OSU.WT.B in my non registered account at.005 sold at .01 Merry Christmas Bonus... 

I do very well with warrants but I have completely stopped trying to explain how they work and how to make money with them to other people. I can and 99% of folks can't. This relates to my freakish ability to look at enormous amounts of data and see anomalies. It also involves a large amount of patience which most people do not have. Most people would lose their shirts doing this. Plus it works well for small amounts of money not large amounts. 

@The Royal Mail TFSA would typically hold more aggressive positions than your RRSP. Why are you employing this strategy?


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## olivaw (Nov 21, 2010)

Semi conservative in my RSP - 40% large cap stocks, 60% cash/bonds. 

100% stocks and REITs in my cash account - mostly large caps

100% small cap in my TFSA. - It's my mad money.


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## warp (Sep 4, 2010)

steve41 said:


> I know exactly what marginal tax rates are. I calculate them, but don't report them because they are meaningless. They are embedded in my tax subroutine, but they don't contribute anything. At the end of the day, you pay one big slug of tax. The effective tax rate is all that matters, because it represents real dollars that you send to the tax man. To report that 'my marginal tax rate is 42%' says absolutely nothing about the amount of tax you pay and importantly, the amount of money you get to spend on stuff.
> 
> So what if the tax on my last dollar earned is taxed at 42%.... the tax on the first 11K or so is taxed at 0%. So what?
> 
> ...


STEVE:

To say that you are not concerned about your marginal tax rate is, to me , naive.
This suggests that you do absoluelty no tax planning, and are happy to just give the govt whatever it wants on your "next dollar" because you are only concerned about what % they take on the total income.

If that was the case what point would there ever have been to contribute to an RRSP in the first place???????

You contribute to an RRSP hopefully to get to a lower tax bracket....a lower marginal tax rate....and hope to take it out later and pay the lower tax rate later, as oppsed to the hight tax rate today.( and enjoy the tax deferred earnings in the meantime. This is called tax planning.

You might prefer dividends to interest income because this produces less tax, in a cash account. This is tax planning.

You might buy US stocks in a RRSP because there would be no foriegn tax withheld, This is called tax planning.

You might gift money to your family after age 18, so the income belongs to them and is taxed less. This is called tax planning.

I dont worry so much on "what I have left to spend", as you do......
I worry more about paying the least legal tax.....and this includes trying to keep my marginal tax rates as low as possible.

If you are happy giving the govt, ( in ONT) appr 45% taxes on your next dollar of income, because you gave them 0% on your first $12,000, good luck to you.


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## steve41 (Apr 18, 2009)

I supply financial planning software which allows people to explore the above strategies you mention. The program enables you to game the marginal tax rates, invest in dividends, optimize estate or retirement income, examine insurance options, loan strategies.... The marginal tax rates, clawbacks, age deductions, etc are integral to the program. I allow the MTR to be displayed, optionally.

My users don't particularly care about the MTR, they are interested in the level of tax itself.... the effective tax rate.

The progressive tax system is what it is.


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## Larry6417 (Jan 27, 2010)

steve41 said:


> I haven't done one of these for a while, but here goes...
> 
> A 50 year old with $200K in his RRSP, earns $75,000 per year, and decides he will change his future savings regime and direct all future savings outside his RRSP to a taxable (nonreg taxed as dividends) account.
> 
> ...


This response fails to address the OP's question: how aggressively should one invest within a RRSP? The OP has already decided to invest within a RRSP.

Also, I'm skeptical about your projections because they don't account for *marginal effective tax rate*. The CD Howe Institute concluded that investing within a RRSP was counterproductive for many income groups when the clawback of social benefits is considered.


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## Larry6417 (Jan 27, 2010)

How aggressively one should invest within a RRSP depends on one's personality and circumstances. For someone with a solid DB plan, aggressive investing may be quite reasonable. As MoneyGal touched on, whether one is a "bond" (stable, secure profession) or "stock" (volatile, uncertain job earnings) is a consideration.

I'm relatively aggressive within my RRSP. I've bought long-term call options for leverage, sold covered calls, and invested in emerging markets. However, I have a stable career, have non-RRSP savings, and am mortgage free.


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## steve41 (Apr 18, 2009)

> Also, I'm skeptical about your projections because they don't account for marginal effective tax rate. The CD Howe Institute concluded that investing within a RRSP was counterproductive for many income groups when the clawback of social benefits is considered.


Those projections were done using the T1 formulation... the same essential tax calculation inherent in a tax program (CANTAX, QUICKTAX....) The internals of the T1 subroutine have the marginal tax rates (both federal and provincial) as well as OAS and GIS clawbacks. It is pretty inclusive.


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## Larry6417 (Jan 27, 2010)

steve41 said:


> Those projections were done using the T1 formulation... the same essential tax calculation inherent in a tax program (CANTAX, QUICKTAX....) The internals of the T1 subroutine have the marginal tax rates (both federal and provincial) as well as OAS and GIS clawbacks. It is pretty inclusive.


I'm sure you believe that. However, the CD Howe institute found that the marginal effective tax rate was higher after retirement for some income groups, which makes a TFSA better than a RRSP for those groups. You claim that's not the case. Simple logic dictates that both of you can't be right.


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## steve41 (Apr 18, 2009)

I didn't say there weren't certain situations where the RRSP was always the better option. I simply showed one example where this wasn't the case. For low income individuals, the TFSA will prevail. For the average Joe, the RRSP seems to be slightly better. BTW, did the CD Howe institute display their results?


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## Larry6417 (Jan 27, 2010)

steve41 said:


> I didn't say there weren't certain situations where the RRSP was always the better option. I simply showed one example where this wasn't the case. For low income individuals, the TFSA will prevail. For the average Joe, the RRSP seems to be slightly better. BTW, did the CD Howe institute display their results?


My apologies for my lack of clarity. I was referring to past statements you made that METR could not be higher after retirement than before. Are you altering your position? That would be the logical conclusion to draw from your statement that the TFSA is better for low-income groups. If the tax rate were the same before and after retirement, the after-tax income from a TFSA should be the same as from a RRSP (if equivalent amounts are invested).

Here's the paper again www.cdhowe.org/pdf/ebrief_91.pdf


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## steve41 (Apr 18, 2009)

No, I won't change that statement.... for a retirement planning scenario in which the subject plans for retirement.... i.e., he expects his savings to fund his lifestyle in retirement and is not protecting/growing a large estate to pass on, then the tax rate in retirement is lower than prior to retirement. Give me an example which you think may refute that and I will run it.


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## steve41 (Apr 18, 2009)

No, I won't change that statement.... for a retirement planning scenario in which the subject plans for retirement.... i.e., he expects his savings to fund his lifestyle in retirement and is not protecting/growing a large estate to pass on, then the tax rate in retirement is lower than prior to retirement. Give me an example which you think may refute that and I will run it.

Its called a registered 'retirement' savings plan. not a registered 'estate-growing' savings plan.

Sorry double posted.


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## Larry6417 (Jan 27, 2010)

The TFSA is considered the inverse of the RRSP because equivalent invested amounts yield equivalent after-tax income. For example, consider $1,000 invested in a RRSP (MTR 25%) compounding at 5% per year for 10 years will grow to $1628.89 before tax or $1221.67 after tax (assuming same tax rate on withdrawal). The equivalent after-tax investment for a TFSA is $750. Assuming the same growth (5%) over the same time frame (10 years), the TFSA will grow to $1221.67 – the same amount as the RRSP. 

You've stated in this thread that:



steve41 said:


> For low income individuals, the TFSA will prevail.





steve41 said:


> the tax rate in retirement is lower than prior to retirement.


Close reading of your statements reveals that they are contradictory – in theory. If tax rates are the same before and after retirement, then the after-tax incomes are equal. If the tax rate after retirement is lower, then the RRSP beats the TFSA. By stating that lower-income Canadians are better served by a TFSA, you're stating that they face *higher* tax rates post-retirement – the opposite of what you claimed in a later post. In practice, the ability to income split, time RRIF withdrawals in low tax periods, and apply pension credits to withdrawals (including the portion split with the spouse) favours the RRSP. However, this is offset by the fact that many (most?) Canadians don't invest the full pre-tax amount.

Steve, we've discussed variations of this in the past and never agreed. The beauty of a forum like this is that we don't have to.  I wish you a happy, healthy, and prosperous 2011.


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## steve41 (Apr 18, 2009)

> Steve, we've discussed variations of this in the past and never agreed. The beauty of a forum like this is that we don't have to. I wish you a happy, healthy, and prosperous 2011


To you as well. 

I have to confess, I haven't explored this issue of RRSP vs TFSA a lot. My time is taken up building the tool, adding new entities, keeping the taxes current, running the enterprise, discovering the odd bug, even. 

I still stand by my statement that, for a retirement plan, tax rates in retirement are lower than in pre-retirement, though it may turn out otherwise. The caveat here, is that a retirement plan is considered one in which savings are depleted as apposed to an estate plan in which savings are grown or preserved.


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## Belguy (May 24, 2010)

How can I tell if I have a retirement plan or an estate plan?


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## MoneyGal (Apr 24, 2009)

Belguy - the company I work for just created a video on this topic (as we see it) - the fundamental tradeoff in retirement income planning is between leaving a financial legacy (an estate) and maximizing sustainable lifetime income. 

Every retirement plan can be plotted on a sustainability/legacy curve just like the "risk/reward" curve we are familiar with from accumulation portfolios. 

So: short answer to your question: you know whether you have an estate plan or a plan which maximizes lifetime income based on the decisions you make about how your financial assets are allocated across asset and product classes in retirement. 

You will have implicitly chosen to maximize either sustainability or legacy given your asset and product allocation choices.


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## Belguy (May 24, 2010)

Thanks, MoneyGal!!

I think that I will have an estate plan until I am 71 and then convert it to a retirement plan at the same time as I convert my RRSP to a LIF and annuity combination.

First, I concern myself with growth and then I become more concerned with income and not outliving my money.

But, then again, I am single and it might be a different decision for someone with a spouse.


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## steve41 (Apr 18, 2009)

Belguy said:


> Thanks, MoneyGal!!
> 
> I think that I will have an estate plan until I am 71 and then convert it to a retirement plan at the same time as I convert my RRSP to a LIF and annuity combination.
> 
> ...


Uh..... if you make it to 71 and you are still unattached, that might be a clue that you are on a retirement and not an estate plan. Just guessing.


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