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Is the RRSP (registered retirement savings plan) right for you?

A new study by Infinite Banking Canada Group has revealed that RRSPs are not as tax advantaged as previously reported.

Pay up to 23x More Tax in RRSP - DO FINANCIAL Canada

The RRSP was introduced in 1957 to encourage people to save for retirement.  As you will see, perhaps it was more than that.

On the surface, the RRSP it sounds good – the government gives you a tax deduction on a contribution to a RRSP which reduces your tax in your working years when your income is high, accumulates tax-free, then pay tax at lower tax rate when you’re not working.

This assertion is assuming taxes in retirement will not increase.  We know that taxes have increased for retired people and will continue to increase.

Illustrations comparing RRSPs to non-registered savings show a larger accumulation with RRSPs. Upon a deeper look, it is not – because that’s before tax.

Lets agree on this – nothing from the government is a free lunch.

No Free Lunch

The RRSP comes with fine print. To get the tax deduction on a RRSP contribution you must exchange 100% ownership of your asset for 50% ownership in it. 

But its not really an equal ownership because you provide the capital, you pay the investment management fees, you assume the stock market risk when you invest it. 

The government provides or assumes none of these things.

The Research

Let’s consider a question your financial advisor has never asked you: If you were a farmer, would you rather be taxed on the one seed, or on the entire crop from that seed?

The answer can be found in the Canadian income tax laws.

The answer is you will pay less tax on the seed than you will on the entire harvest that the seed creates.

This reveals the first discovery:

#1 – New research shows you pay up to 23 times more in tax than the amount of tax you saved.

This means RRSPs is not your friend, or the friend of the 6.2 million who contributed to a RRSP in 2020, or the friend of the estimated 50% of Canadians who have a RRSP account. 

Government and investment industry have always promoted RRSPs are good for you.

Why would they say that?

Well, the answer is a  conflict of interest.  The government gets up to 23 times more tax back than the carrot they dangled, and investment firms (banks) earn significant annual fees on RRSP investments.   

To see the research book a short conversation.

The study also revealed something else.

#2 – RRSPs lack many of the attributes of the perfect investment.

Research has revealed people want all of the attributes of the perfect investment below in their retirement savings.  RRSPs provide some but very few of them.
Attributes of the perfect investment 12-3123

Government Interference

There is a better way to save for retirement and the  government knows this.  It is so good that the government put restrictions on it to make RRSPs look more appealing.

Why would they need to do this if the RRSP was so great?

Despite their attempts, a better way still exists.

The Good News – The Better Way 

The wealthy don’t use RRSPs.  That should speak volumes! 

They use something better – something that has been proven over 175 years. 

It offers all the attributes of the perfect investment.

Some of these people include Walt Disney, Jim Pattison, Ray Kroc, Rockefellers, Ted Rogers, J.C. Penney, US Presidents, only to name a few.

To learn what this better way is book a conversation.

A Way Out of the RRSP Trap

There is yet more good news for those already in this RRSP trap – there is a way out.

People have already realized RRSP’s pose a tax problem. A strategy used to address this is to withdraw more income from them than you need up to the next marginal tax bracket.

The problem with this strategy is most people end up spending what they don’t need instead of reallocating into a better asset.

The wise reallocate this surplus into the worlds safest storehouse of wealth. You should too!

Next Steps

To see the research and to learn of the better way to save for retirement book a conversation!

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