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  • richardmkiernicki

The Unconventional Conventional, Part VI

Updated: Aug 6, 2019

Let’s continue with the RSP bashing again this week, after all, it is RSP season. If we can’t poke a little fun at Canada’s favourite retirement vehicle, well, what else can we do?

Interestingly enough, it seems that TFSA’s are giving RSP’s a run for their money. According to yesterdays article in, BMO discloses that 67% of Canadians have RSP’s and only 39% use TFSA’s however, more people (42%) would invest in them if they had the capital versus 37% who would still invest in RSP’s. Is the desire to pay less tax becoming less important to Canadian’s? We’ll get back to this as I have digressed from my original intent, however this is worthy of mention.

One of the reasons that keeps me away from annual RSP contributions is, to me, a very serious consideration. RSP’s have zero collateral value. Yes, they are non-assignable and hold no collateral value. Your money is dead. What I find amusing in all of this is that most financial institutions still view it an asset. I would venture to guess that because you could cash out the RSP it has some value. However, most Canadians need to be able to build their net worth using every available means that they can and yet one of the most significant tools used in the accumulation of retirement assets has no real value. Perhaps the government and financial institutions are worried that individuals would increase their debt, thereby weakening their overall stability, somewhat akin to highly leveraged positions in real estate. Apparently that is partly what caused the last economic upheaval commencing in the US. Still, an asset that you cannot prudently borrow against has little value, other than the present value, which cannot be used until withdrawn.

The second reason that I reject the usage of RSP’s as a primary consideration for retirement is the fact that once in, you have to go the whole way following the governments rules for maturing RSP’s. As most of us know, maturing RSP’s must become RRIF’s. Another government created plan to now distribute the proceeds. This is a calculation based on an

individuals age at retirement and the maximum age to hold a RRIF. All assets within the plan have to be withdrawn at a rate of 20% of the value commencing at 94.

Well I don’t know about you, but I want the least amount of taxable income in my 90’s. I will probably need more money if I am still alive in my 90’s so I would be looking for tax preferred income streams when I am that old. I figure I sure as hell would have paid more than my fair share of taxes by that time. And yet, the government wants me to leave my assets in their

scheme as long as possible. The simple reason for that is because the government wants you, or your estate to pay the highest amount of tax after you die and before your beneficiaries receive their inheritance. Financial advisors need to start offering better tax planning solutions and seek ways to reduce the taxes during the golden years. See you next week with more!

Copyright 2013 Richard M. Kiernicki. All Rights Reserved.

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