Monday, January 23, 2012

My Concerns With RRSP's

Every financial planner that I have ever come across has told me that RRSP's are the place to invest your money. I am not 100% convinced this is where I want to put most of my money, if any.

Robert Kyosaki said "401k is for people who are planning on being poor when they retire." 401k is the U.S version to RRSP's. I have thought about that statement from the moment I started investing in RRSP's. Here's why:

  • With RRSP's you get a tax deduction and possibly a refund when you make a deductible RRSP contribution. Is that really beneficial? I don't expect my tax rate upon withdrawal to be lower than it is right now, which means the refund I receive because of my contribution doesn't mean much if my tax rate stays the same or increases, which it definitely will. An increase in my tax rate would actually cost me more to withdraw in retirement.

  • More and more TFSA's are sounding more attractive. With a TFSA I can contribute $5000 a year tax free. After marriage we can contribute $10,000. Also, if I withdraw any money I don't have to pay taxes on it and I could add my withdrawn amount to my contribution the following year. That's a bonus! With TFSA's however, I can only contribute $5000 a year, and we all know that won't make you rich. I will have to save way more than that using another vehicle.

  • I've thought about real estate and investing heavily in rental properties. Investing in real estate over the long term could bring great rewards. For one, it will provide consistent cash flow, secondly there are many write offs, and lastly the appreciation over time.

So what are your thoughts about RRSP's?

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