I’m a simple person.
Time with the family, my personal freedom, good friends, financial independence, good food, my health and my family’s health…these are the important things in life.
So whenever politics comes up I always find it a waste of time.
People have argued about different political leanings for years.
And the results seem less than inspiring.
So when I was invited to attend the most recent “Munk Debate” at the Meridian Hall in downtown Toronto, I didn’t know what to make of it.
Listening to four Americans debate the pros and cons of the USA’s foreign policy didn’t really excite me.
But wow, I’m so glad I went.
I disagreed strongly with a lot of what was discussed, but hearing four people talk through their differences instead of screaming at each other on social media was a breath of fresh air.
That’s a picture from last night’s debate above.
I’d much rather debate things like RRSPs. LOL!
For example, in this week’s podcast with Nick and me, we discussed how RRSPs may have a fatal flaw, or actually, several fatal flaws.
Here’s my personal issue with RRSPs in Canada.
An RRSP gives you a tax break today. But it does not make the tax disappear.
It moves the tax into the future.
And I think most people are miscalculating their future needs.
If monetary debasement continues in Canada at roughly 8% (M2 Money Supply increase since 1969, according to Stats Canada) I believe you’re going to be in for a big surprise when you retire.
Why?
Because the tax brackets in Canada don’t increase at 8% a year.
If the dollar is debased at 8% per year but the tax brackets don’t increase at 8% per year, then:
You’re likely going to need to take a lot more money out of your RRSP than you are planning for. (Just look at the cost of beef, insurance, vacation travel, gas, etc.)
A larger portion of that withdrawal is going to be at a higher tax bracket because the government doesn’t increase the tax brackets as fast as M2 increases.
So if you were planning to take out $80K a year during retirement, you may be forced to take out $100K to live the same life you planned because of currency debasement.
And if the tax brackets don’t move higher in lockstep with this increase…then more of your annual withdrawal will be taxed at a higher rate than you planned for.
And there’s a third issue:
What happens if the tax rates increase? You now have money locked into an RRSP that you cannot access without paying the new higher tax rates.
If the future requires much larger withdrawals for a comfortable retirement because the dollar has been debased faster than tax brackets were indexed…
… then the RRSP may not be the safe, boring, obvious win it is often marketed to be.
To us, this is the hidden RRSP risk:
You are deferring tax from a known rate today into an unknown, potentially higher-rate future…inside a currency system that keeps forcing your income needs to be higher and higher.
And yes, you can run all sorts of scenarios showing how your investments grow faster inside an RRSP because it’s tax-free, etc.
But that does not change the fact that you are at the mercy of debasement and tax rate changes when you need your cash.
(Quick Aside: The bank withholds some of your RRSP withdrawals directly to cover taxes…so you don’t even get the chance to access all your cash on any withdrawal…I was shocked when I learned that).
And this is all enough of a threat for me to stay far away from RRSPs.
Remember, I’m a simple person (see above).
My personal freedom is of the utmost importance to me.
So being forced into a savings vehicle that I don’t have full control over is not my idea of “freedom”.
It’s actually the opposite of freedom.
It feels like monetary jail to me, LOL!!
To each their own, I guess.
Anyway, we’ll discuss any questions you have around this on next week’s podcast.
Stay tuned!
Tom & Nick
