2007 November | WhereDoesAllMyMoneyGo.com

The Preet Principle – Leveraging to Invest the Right Way! Part 1 of 4

Posted by Preet on Nov 30, 2007 | 1 comment

I picked the title of this series with my tongue planted firmly in cheek. At my old firm, I created an analysis to look at a combination of financial strategies involving leverage that were designed to mitigate the risks involved with most leverages. One of the advisors decided that the strategy should be named "The Preet Principle" and actually referred to it as such – and I think still does! :) A word of caution before proceeding. Don’t even think about implementing anything I write about (on this blog, but especially in this series) without first consulting your own professional advisor. And with that, let us begin… Certainly many people...

Making Regular Contributions to your RRSP instead of RRSP Loans

Posted by Preet on Nov 30, 2007 | 4 comments

Many people ask their RRSP issuer to take money directly from their bank accounts the day after they have their pay cheques deposited. On the other hand, there are droves of people who take out a loan every February to make their lump sum contribution before the deadline – only to have to make monthly payments on their RRSP loan until the following year. If you have the ability to get out of the rut of annual RRSP loans – there are a couple of advantages. BUT with our society being more disposed to financing everything as opposed to saving for everything, sometimes the only way to get people to save is to get the RRSP loan. Making a mortgage payment or car...

The RRSP Contribution Deadline

Posted by Preet on Nov 29, 2007 | 0 comments

If you would like to claim your RRSP contribution(s) for a given tax year, you need to make the contribution(s) before the first 60 days of the following year. So for example, if you wanted to ensure you could claim an RRSP contribution for the 2007 tax year, it must be in no later than February 29th, 2008. This is the RRSP Contribution Deadline that you will hear about in the media at the beginning of every year. February 29th represents the 60th day of 2008. (Note that 2008 is a leap year – normally the deadline will be March 1st in non-leap years.) If you wait until the 61st day or later to make your contribution, then you lose the ability to claim the...

Are RRSP's the best way to save for retirement? Part 3 of 3

Posted by Preet on Nov 27, 2007 | 6 comments

Continuing from Part 1 and Part 2, it’s looking like saving for retirement through RRSP’s versus non-registered portfolio savings is almost neck and neck – albeit having made some fairly large assumptions. Namely, we assumed that Anna can afford to pay the tax bill on her non-registered portfolio up to age 65. This may not be the case if she held individual securities or mutual fund trust units as the interest income, dividend income and realized capital gains distributions could be in the tens of thousands of dollars per year at this point. We cannot just arbitrarily pull money out of her day to day cash flow to pay these costs in one...

Are RRSP's the best way to save for retirement? Part 2 of 3

Posted by Preet on Nov 27, 2007 | 7 comments

From what we have seen from Part 1, it seems that RRSP’s deserve some more attention than previously afforded. Not in so much as to promote them further, but rather to see if they are truly in your best interest. Our basic analysis is not yet complete though, so let’s keep trucking on! :) First, let’s recap the results from Part 1. We saw that by saving 10% to her RRSP account, Anna would have $43,700/year in retirement. By instead saving to her non-registered portfolio, she would be able to fund a $51,300/year retirement income. That is a SUBSTANTIAL difference. Let’s now look at the effects of putting the tax refunds to good use in the next...

Are RRSP's the best way to save for retirement? Part 1 of 3

Posted by Preet on Nov 27, 2007 | 0 comments

You may be surprised to learn that there are many people who absolutely detest the idea of RRSP’s. I remember a meeting with a senior citizen, well into retirement, who became visibly red in the face with anger when explaining to me how much less he had to spend in retirement thanks to the tax laws surrounding RRSP’s and RRIF’s. And he is not alone. I don’t want to scare you: RRSP’s can be great for some/most people. BUT, if not planned properly, you can end up shooting yourself in the foot come retirement time. If anything, this section is designed more to get you thinking about how well you plan your finances and the future (as best as...

Minimizing the RRSP Withholding Tax on Withdrawals

Posted by Preet on Nov 27, 2007 | 75 comments

You’ll recall that withdrawals from your RRSP are normally included as income in the year that you make the withdrawals (save for a few exceptions). If you happen to be in a low income year and have the need to make a withdrawal from your RRSP, then it might make sense to space out your withdrawals such that you minimize the withholding tax that your RRSP issuer will remit to the Government on your behalf… For example we know that your RRSP issuer will withhold the following percentages if you ask to make a withdrawal from your RRSP: Withdrawal of up to $5,000 = 10% Withheld Withdrawal of $5,001 – $15,000 = 20%...