My RRSP returns are abysmal so why bother?

A long-term view makes the benefits of RRSPs more clear.

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investment_anxiety_1008_322Ah, we feel your pain. We really do. For most investors the last couple years have been a roller-coaster. But retirement planning needs to be measured in decades, not months. The key is to stay invested and to keep making contributions right through the market lows. To understand the long view, take someone who just turned 65 who started working in 1970. Had he invested $10,000 in the equivalent of the S&P/TSX Composite index back then, it would now be worth about $400,000. Last we heard, you can’t get those kinds of returns by stuffing your money under a mattress.

13 comments on “My RRSP returns are abysmal so why bother?

  1. 1970-2013 = 43 years… at a rate of 10,000 a year, wouldn't you have 430,000 if you put it in a mattress instead? Sounds better then 400,000 from investing.. but maybe my math is funny?

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    • A.T I agree one hundred % goverment always makes it sound good but got to keep grabbing and wounder why the working person cant get a head F.T.W

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    • Exept that he only put in $10,000 once in the year 1970 not all those other years too!

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  2. I started with rrsps and mutual funds @23 yrs of age $150.mth and increasing to 356.90 mthly as income increased.Not an easy feat as a single mom of 2, with no child support. I am now retired @58yrs of age and most recent statement tells me that I will be lucky to break even in the end, As far as taxes go???? That money was from earned wages and was taxed before I received it, It is taxed again when I withdraw it. I draw $500/mthly as my work pension alone isn't enough to keep my roof over my head.I receive just around $350/month after withholding tax. I could have had that money to make life easier,as in a social life, more clothes than the minimal wardrobe I settled for, because as we all know the kids always need something. Now I tell my kids to stay away from RRSPs and max out their TFSA on a yrly basis. I'll bet they come out further ahead of me. Bet you my RRSP will run out before I die. CPP& OAS are ever decreasing,as now we are penalized by largely decreased amts for early??? claims @ 60 for CPP and an ever increasing age for OAS.Worked hard most of my life,and when physical limitations necessitated an early retirement, I struggle to hang onto my home. I could go on about people coming to this country & receiving OAS after 10 yrs. when they never paid any tax here,but that's another story for another day.

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  3. I have always wondered about rrsps being 'such a good tax break': I can't afford the loan I would need to take out to buy rrsps each year. By the time I paid off the loan, on my low – or no – wage, and with interest charges – hey! time to do it again! In addition, like said by 'Taxed to death', they have already taxed the money with which you buy the rrsps!!!!!!! oh yeah, that's a savings allright. THEN they tax you for withdrawing it!!! Yay, I get to be taxed 2x instead of once. And since there's been no growth in my rrsps – actually an average NEGATIVE growth over the past 10 years – yay! there has been no tax-free interest income for me!!! And, I'll be paying twice on the m
    little money I was able to earn before getting laid off again.

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    • Laura, when you take out an RRSP the amount of your contribution is deducted from that year's taxable income. Since your tax is deducted at source by your employer, when you do your tax return, you will get a refund due to your RRSP contribution. For example, if your taxable income is $50,000.00 and your tax rate is 30%, you would pay $15000.00 in taxes. If you contributed $10,000.00 to an RRSP, your taxable income is now $40,000.00 and you would only pay $12,000.00 in taxes. Since your employer already deducted $15,000.00 based on your income, you would get a $3,000.00 tax refund.
      I hope that clears it up for you.

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  4. I only contribute to RRSP's thru work because my company has a matching program that if you put in $1.05 per hour worked the company with contribute an addition $0.95. That $1.05/hr goes into the RRSP before taxes are taken off so I don't see any great return on my income taxes but $0.95 of free money isn't too bad over a long term period. But if I was to contribute on my own, outside of work, I would rather go into a TFSA or Mutual Funds. Someone also told me to go into a GIC instead of an RRSP, but I haven't looked too much into that.

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    • Hi Michelle,

      Group RRSP's are definitely are a win-win situation for both an employer and an employee. It encourages retirement savings in an age when people are putting it off (not always by choice). Also, it provides a nice sizable tax break for the employer who is matching the contributions.

      Not sure who you've been talking to, but they don't seem to know alot. If you make 40,000+ then your best retirement vehicle should be to contribute to an RRSP (Mutual Funds are a great choice) but if you make less than 40,000 per year, TFSA's would be a better choice for you. The reason for this is that the 40,000 threshold which brings you into the middle-class income bracket would allow you to generate a tax return and thus, when you withdraw from the funds in retirement, you will be taxed at the lower tax bracket, this is why you would pick an RRSP over TFSA. If you made less than 40,000 per year, you wouldn't benefit from tax deferral in your golden years, so why bother?

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    • Think of RRSPs and TFSAs as investment envelopes. Bonds, Mutual Funds, and other types of investments are held within your RRSP or TFSA and allow those funds to grow via the investments your money is vested in. Hoping I'm explaining things properly. If not, I'm sorry.

      Also, GIC's are such low risk, that they should be renamed Guaranteed Insufficient Cash. They can't even keep up with inflation in this country. Don't waste your time and money in a GIC. Speak to a reputable financial advisor to find out how you can properly plan for your retirement. The earlier you start, the better. In your case, Michelle, the group RRSP plan is great, for as long as you work at that job. If you leave, you may be forced to reinvest what you have accumulated, so make sure you always have a backup plan.

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  5. A.T If you get back 400,000, You're Lucky !!!……$ 400,000 (-19% =Income tax )= $ 324,000.May be $0.0000

    - No compound interest.
    - No crook CEO
    - No Ponzi scheme.
    They may tell you that you need to Looking for a Long term investment, not 10 years, nor 20 years, nor 43 years, may be 65 years or 100 years. By that time you're no longer to find them….in haven or in hell…..

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  6. To A.T., I believe the idea was that there was only one deposit of $10,000 43 years ago to obtain that $400,000. Compounding interest resulted in huge growth. Before you say "not in these markets", I'd like to note that I earned an 11.04% rate of return through my Group RRSP last year (my pension).

    Taxed to Death: I'm sorry to see that you are struggling. You are right that you were taxed on your earnings at the time but if you truly had valid RRSP contributions and had your income tax prepared properly each year, you would have had that tax returned to you at the time. We do pay a lot of tax but if you paid double the tax on those funds it's because your RRSP contributions were not claimed on your income tax. I get nice tax refunds every year thanks to my RRSP contributions and I look forward to the time when I retire and can make use of them. I understand that I will pay tax on them then but I also understand that it will come at a lower rate of tax due to reduced income levels that come with retirement.

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  7. First of all, the article states that he put in $10,000 only! Not $10,000 every year. Secondly when you deposit into your rsp you are not taxed at that time on that money. For example if you earn $50,000 a year and put $5000 in your rsp. Your earned income for that year is $45,000. You are not taxed on that rsp contribution.

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  8. year 2012 started working 1970 put 10,000 a year in a RRSP he has invested $420,000, now he has $400,000. Sounds right to me.

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