Comments on: Low savings, not RRSP Contribution Limits are the problem

By: Macatax

Macatax — Tue, 14 Dec 2010 17:00:00 +0000

Even C.D. Howe experts don’t seem to know RRSP basics– the difference between contributing savings for tax refund (tax shelter) and income deferral resulting in less tax deducted from pay. But they argue about the merits of contributing anyway. And get diddled out of their sox when they do.

Example: Employee J. Doe in a 40% tax bracket could have submitted form T1213 to “defer” $5,000 income and have a total of $2,000 less tax deducted from pay. Instead s/he contributed $5,000 savings, for $2,000 tax refund.

The tax benefits are equivalent but the costs are not. Doe used $8,333 hard-earned income, taxed $3,333 (40%), to have $5,000 savings to contribute.

Joe could have used that $3,333 wasted income. After $1,333 (40%) tax it would have left an extra $2000 in pocket. His/her only consolation is s/he has millions of Canadians for company.

By: Traciatim

Traciatim — Sun, 31 Oct 2010 18:03:57 +0000

Kumar, Really?

1) Steal

2) Steal

3) Take advantage

4) Steal

5) Mooch

6) Mooch

That’s not living frugal . . .that’s being scum.

By: Kumar

Kumar — Sun, 31 Oct 2010 15:46:49 +0000

I want to tell you that I only make 12 dollars an hour and I am able to save $720.00 out of my $800 biweekly cheque at the very least. I want to teach you something that many of you Canadians born and raised here have no idea how lucky you are. New immigrants will out save you in every turn.

1) Do NOT buy tissues and toilet papers. McDonalds and Starbucks offers you free napkins, and you take that home.

2) Wendy’s provides free plastic forks, spoons and knives. Do not spend money on cutlery.

3) Free food is offered daily all day called Langar at various Sikh Temples.

4) Do NOT buy tea, you can get free teabags at banks and car dealerships and you get hot water from McDonalds. Their cups are durable and then you can get a refill as a coffee or a tea for free.

5) Clothes, you can get free clothes on craigslist or get free used clothes at Salvation Army and ask them for the ones that they could not sell. You got it, not only are you going to get used, you are going to cut corners to the point you are getting them for free.

6) Make friends with hipsters and couch surf. Avoid paying rent. Try to couch surf at several friends homes so that you do not overstay your welcome. Hipsters do not mind, and if you actually offered to clean and do everyone’s dishes paying in labour as opposed to money, they will not consider you a mooch. These hipsters do not know what poverty really is, although they think they do. They should go live in Uttar Pradesh and see what poverty is really like. You can even sell your free stuff you get from craigslist and resell it to them, or give it as gifts in exchange for staying over.

By: Jenika

Jenika — Thu, 30 Sep 2010 02:38:19 +0000

Neil, you are so right. How is someone making 12.00 an hour supposed to even max out a TFSA? At that income, you would be lucky not to have to fall on credit card debts as black swan events may hit you when you least expect it.

By: Neil Hampshire

Neil Hampshire — Wed, 14 Jul 2010 21:02:19 +0000

This TFSA for poor people to benefit by sheltering capital gains on savings is bullshit. It is more for wealthy and the well to do to be able to luxuriously save $5000 a year. How is someone making $12.00 an hour supposed to pony up $200 per biweekly cheque? You know, that is 25% of earnings, and it might not seem like much, but when you only have $800 biweekly after taxes, that is a huge chunk to cut off. Id much rather have a cheque for $500 a year mailed to me by the government in lieu to having a $5000 TFSA room.

By: OmarF

OmarF — Sat, 20 Feb 2010 17:35:56 +0000

What seems to be missing from this discussion is that RRSPs are not necessary in order to save for retirement. They are just one leg of a balanced retirement strategy.

If you are consistently maxing out your RRSP, you have the discipline necessary to be able to save outside of the RRSP as well. You may well have retirement income in the same tax bracket as the majority of your earning years. In other words, there is no tax advantage to deferring your income once you have too much money in the RRSP.

You might as well use after tax income for saving then. The TFSA makes more sense, as do other investments where your gains are taxed at a lower rate than straight income.

By: Finanical Ramblings

Finanical Ramblings — Sat, 20 Feb 2010 09:56:23 +0000

[...] Low savings, not RRSP contribution limits is the problem at Canadian Capitalist (can’t agree more. As a financial planner, I can tell you that people don’t have 10,15, 20k to put aside every year) [...]

By: Sampson

Sampson — Thu, 18 Feb 2010 06:33:53 +0000

CC’s comparison of private vs. public sector, DB vs. RRSP + CPP is an interesting one. Seems to me a better way to help people without DB plans is to increase CPP contribution amounts.

One giant national Ponzi scheme to equal the PSPP Ponzi scheme

By: the Cynical Investor

the Cynical Investor — Thu, 18 Feb 2010 03:59:54 +0000

@CC ‘But boosting contribution room will achieve little in addressing the savings problem of the vast majority of Canadians.’
You are right, but why not give people the opportunity to save even more, if they want and can. Due to Pension Adjustment I will have lower RRSP contribution room.

They call it Defined Benefit, defined might be but it is not for sure at all as I work for a private company and we know what could happen.
It does not matter whether the company is old, big, famous, etc. they all can go bankrupt.

By: Financial Cents

Financial Cents — Thu, 18 Feb 2010 00:15:23 +0000

I agree with most of the posts here, raising the RRSP contribution limit is not going to help Jack or Jill Canadian. Not only are most Canadians unable to max-out existing RRSP room, I strongly agree with an earlier post: many Canadians are carrying so much debt they cannot even contribute to an RRSP.

I recall a recent article that said the average Canadian household is near or over $90,000 in debt. That may not seem like a great deal, until you consider the median family income in Canada is hovering around $75,000 (to be generous). On average, we owe more than we earn. Certainly there is “good debt” and “bad debt” but the reality is, families are becoming more debt and house-poor all the time.

If the government is bent on increasing contribution room(s) to promote savings, why don’t they make TFSAs’ contribution room retroactive, say $100,000 worth? That would be a much better move for everyone at all income levels as any savings (big or small) would be immediately tax-sheltered instead of tax-deferred.