Rob Smith, author of Dollars From Change and Dave at Investing Intelligently had a couple of comments on yesterday’s post that you should consider when deciding if a RRSP contribution is right for you:
- Rob pointed out that RRSPs are important because you are “maximizing the tax rate of deductible contributions and minimizing the tax rate on eventual withdrawals”. In other words, you want to contribute money on which you would have otherwise paid tax at a higher rate and withdraw it when you will be paying tax at a lower rate.
- Dave made an excellent post on the mortgage versus RRSP debate and concluded that the answer depends on what assumptions are made. You can assume that your RRSP portfolio will have returns in the low single digits and show that a mortgage pay down is better, but it may not be a realistic assumption.
- Rob also suggested a simple rule of thumb: try to keep your home equity (value of the home less the mortgage on it) and your RRSP roughly equal. If one is much lower than the other, then perhaps that’s where you should put your money to work this year.
- The anti-RRSP crowd also complain about all the bad things that happen if you have accumulated too much money in your RRSP (OAS claw back! high taxes!). But how realistic is this concern (which is, admittedly, a nice one to have) for the vast majority of Canadians? According to Statistics Canada, even families in the 55 to 64 age group, who are presumably close to retirement, have a median value of $60,000 in their RRSPs.
Winners of the Giveaway: As Margot generously offered a free copy of her book for the giveaway, there are two winners: Patricia and Bob. Congratulations to them and thanks to everyone for participating.
If you didn’t win, you can always order a copy of the book (priced at $22.50 including shipping) from the Spend Smarter website. I think you will pick up a tip or two that more than pays for the price of the book. I should also point out that this is a public service announcement and I do not receive any benefit from the sales of the book. I’ll also take this opportunity to thank Margot for taking the time for the interview and wish her every success with her book.