Discussions

So now as a retired person in the lowest income tax bracket which for Federal is 15% and provincialy 10% for a total of 25% my RRSP’S are pretty much worthlessness! When I want to take some out it cost me 25% . Tell me when did anybody make 25% on their money ? Even with compound interest in the last 20 years nobody made 25% so why bother with them? I’m sorry I did.

Yeah but you deducted your contribution from income when you made it. Probably earned yourself a tax refund then. Must have forgotten that part.

Like anything else are best used as part of a broader investment strategy. Yes you are paying income tax on them now that you are drawing from them. I sincerely hope that did not come as a surprise.  
 
However, saying they are worthless is a bit confusing. The point of them is to have money to live off of in your retirement. If you are drawing from them, and paying 25%, then the other %75 is your income to live on.  
 
Also remember you would have paid more than that in income tax when you were still working, if you hadn’t put this money into RRSPs.  
 
At any rate, I hope you feel better after your vent, and take the time to speak to a financial adviser about possibly moving some money around.

Was going to mention the return at tax time of investment.

It's impossible to know your individual situation, but RRSPs make sense for some and no sense at all for others - like most investments.  
 
Having said that, it's unfair to say that nobody made 25% compound interest in 20 years. Last year alone my RRSP's made 9.70% interest. Your mileage will vary based on what you have invested them in, when you invested them, and when you take them out of those investments.  
 
RRSPs allow you to defer taxation until you retire. If you withdraw money from your RRSPs, the bank will take a withholding tax on behalf of the government - this is to ensure you are capable of paying taxes on the money withdrawn. However, whether you are removing a sum from the RRSP or paying yourself money out of a RRIF, etc. you are subject to taxes. That's the point of deferring the taxes. When you contribute to an RRSP you effectively reduce your taxable income, and pay less taxes - on the understanding that you will be taxed later when you remove the money.  
 
Finally, the amount of taxes you will actually pay, like every year, is really only finalized when you file your income taxes. Since there are so many individual income tax scenarios, it's impossible to know whether you will in fact pay 25% tax on the withdrawn amount. Keep in mind that while the federal basic tax rate is 15% and Manitoba's is roughly 11%, there are basic personal exemptions (ex: income below 11,809 is not taxed federally). Plus there are numerous tax credits that can further reduce taxation.

It's not apples to apples.  
 
There's the deferred tax, compounded interest, and other things to consider.

for one fact only -  
 
it is a savings for your retirement that you don't touch until needed.  
 
if you had that money in a savings account chances are it would have already gone.  
 
If you don't have a work pension and even if you do you can't usually start that until 65.  
 
you can't count on Canada Pension. If I was able to take all the contributions I had made in the 55 years plus of working I would have so much money in a RRSP I would faint.  
 
Instead I get a deposit each month that is barely enough to survive and if I don't live long it doesn't even come close to what you paid in.  
 
Then for my funeral the family gets $2,500 AFTER they pay for it of course. You don't get it before you have paid the bill. At the very least you should be able to get it paid directly to funeral home. $2,500 probably doesn't cover the hole being dug and your body thrown in. Covering you up is probably extra charge.  
 
Then your surviving spouse is SUPPOSE to get a survival pension. Guess what they put that with the pension the spouse is getting and you can't go over the maximum rate of pension so your surviving spouse may get nothing!  
 
I wish all of my money could have gone into RRSP. At least it would be mine and my families.

If a person has $100,000 in savings it only equals $3000 in annual retirement income (if you're lucky).  
 
Lots of people likely think they're safe when they're actually poor. Don't spend big on things like vehicles and vacations during your working career.  
 
Edited by Hey!, 2018-11-20 09:04:24

Like others have said. RRSPs make sense in situations. When using an RRSP, you defer taxes to retirement under the assumption you will make less money during retirement than you did in your working career, thus being worth it. If you are low income, a TFSA makes more sense (for the modern investor, of course, since it is a recent change). The best way to use an RRSP is to contribute your limit then use the refund you get at tax time to start next years contribution, this way you are able to make the most of the tax deferment.  
 
Another great strategy is to not invest in things you don't fully understand. Obviously you didn't understand how an RRSP works.

When you contributed to your RSP, you were in a higher tax bracket than you are now and did not pay income tax on that money the year you put it in. You have to pay the income tax one time or another. So say you were in the 35 percent tax bracket when you were working and you are now paying 25 percent income tax, then you paid 10 percent less income tax! It’s not “costing” you 25 percent. Please understand how things work before you go on a rant that is 100 percent wrong.

You really need to see a financial planner with that outlook. You will be glad you did, and so will your family.

Bottom line is, you pay taxes on all money you earn at some point. If you bought $1000 of RRSP you deferred paying taxes on $1000 of your income at that time, but you have to pay it later when you take it out (in retirement). And because the amount of taxes you pay depends on your tax bracket, if you're in a lower tax bracket now when you're redeeming it (as you say you are in the lowest bracket), then you are paying less taxes than you would have when you bought the RRSP. Hope that makes sense.

75%.  
 
Why the hate for taxes? We all enjoy healthcare, etc., especially retirees.

RRSP is not a vehicle to save for retirement.  
 
It's a tax deferment scheme. Avoid the high taxes on part that $75000 income you earn in your 40's, and pay the taxes on that deferred income that's later recovered .. at a lower rate .. when you withdraw that cash in your 70's and when your income might be closer to $30000.  
 
The assumption is that your income will be lower when you retire, and that the money you withdraw will then be taxed at a lower rate.  
 
RRSP is not a savings plan. It's a tax deferral plan. Look at it this way. Your RRSP account collects your money before any taxes are paid; they will need to be paid later but hopefully in a lower tax bracket.  
 
You can save for your retirement either in a 'before tax' RRSP plan and pay taxes later, or pay you can pay your taxes now and save the remnants of your earnings for a good old age. Either way, government has you covered.  
 
Each of us will have a unique strategy that's best - hopefully combining both the before/after tax strategy - that results in maximum benefit and if only we could predict the future we'd all be zillionairs

How much are you wanting to withdraw, monthly? Depending on your annual income, the income tax refund will balance it all out at year end. The tax saving contribution, and compound interest, tax-free, worked for you as well. Personally, after losing BIG in mutual funds when planes hit the towers, our RRSPs have built up a nest egg bigger than our pensions.