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Leap into Your RRSPs and Financial Planning

RRSP banking web sites must be white hot with action today, as we all have an extra day to add more funds to our RRSP and then claim it on our previous year taxes. Leap Year adds one more day for the festive RRSP Rebalancing Season, and gives financial pundits another day to argue RRSP or TFSA ? The answer (of course) is it depends.

Leap Year and RRSP
Another Exciting Leap Year is Here

No doubt there will be countless articles today arguing that you should be trying to sneak a little more money into your RRSP, because you have an extra day to do it (and that is always the best reason).

You could also view this extra day, as a day to clean up a bunch of financial things you have been ignoring like:

  1. Putting Money in your RRSP !!! OK, enough of that.
  2. Make up a financial plan for the rest of the year (you have 10 months still to go, after all).
  3. Check that all your insurance policies are up to date.
  4. Make an extra payment on your debt, just because that would be cool!

I view a Leap Day with trepidation because I am not getting paid  for this extra day, am I? I am working an extra day for free? Not really, as I get paid bi-weekly, but for those that are being paid bi-monthly, you are making a little less per day in February than you would normally.

Question of the day:

If you were given a free day to do whatever you want, what would you do? Today is that day.

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RRSP Time and #MoneyStories

If you were planning on rebalancing your RRSP or something similar you have until Monday (end of day) to get this all done. There will be a plethora of exciting articles out there to read (including from me), but remember that the RRSP is really a Savings/Tax Deferral System, because you will have to pay your taxes on the money (hopefully not more than you saved by putting money in your RRSP in the first place). Is it worth madly panic’ing to try to make a last minute RRSP deposit if you don’t have a specific need to do so? I don’t think so, you might do better putting the money in your TFSA (if you have room, for either, for that matter), or pay down debt?

Expanding Debt

The Expanding Ontario Debt

The Ontario Government decided that they wanted to have the biggest sub-national jurisdiction Debt in the world ($308 billion), so they continue to run big deficit budgets with big promises. I will be reviewing the alleged extra funding for the Autism programs (with a lot of input from Mrs. C8j, hopefully), $333 million over five years. Why couldn’t they just give me a cut of that? Speaking of huge debts, evidently the World Debt is Rising (according to Bloomberg) but who are we borrowing from then? Mars? Venus? Maybe that is how Pluto ended up being demoted from planet (it owed too much money to the Intergalactic Banks).

Did you realize that Mattel has brought back the Thing Maker as a 3D printer? In case you were wondering what to get me for Easter.

A thought for a Friday:

“Don’t confuse comfort, for happiness”

My Writings for Week Ending February 26th

Another very confusing week of weather here in Ottawa, but luckily my writings didn’t seem as confusing (I hope).

To absolutely no consumer’s surprise Stats Canada published last week the monthly inflation numbers and it showed that healthy food costs a lot more than it did a year ago, and even Gasoline is more expensive too? Given the new taxes the Ontario Government is going to put on booze and smokes, that won’t help these numbers either.

What is a Spousal RRSP? That is a question a few folks have asked me, and I keep thinking about how only 10 years ago it was really the only way to income split (in retirement), but now thanks to Pension Income splitting the Spousal RRSP seems to have disappeared off folks’ savings radar?

👇 For more great financial articles from this week click here 👇


The Spousal RRSP the Forgotten Savings Tool

During this exciting RRSP season (where the main topic seems to be whether you can sex up the argument about TFSA or RRSP) there does not seem too much being mentioned about the Spousal RRSP and its uses in an Bimodal Savings system.

Is This For Me ?

Let me be clear if you fit into any of the following groups then this advice is not for you:

  1. Not married, if you don’t have a spouse, you can’t have a spousal RRSP.
  2. If you are married but your spouse makes as much as you do
  3. You and your spouse have a good pension plan (which you are sure is going to exist when you retire)
  4. RRSPs are viewed as the devil’s own way to screw you into paying more taxes later in life.

In all those situations the Spousal RRSP really doesn’t do you too much good, however, if you are not one of the previous group, look into a spousal RRSP.

Why ?

The spousal RRSP was first introduced as the original income sharing mechanism. It can also be used for income sharing even before you retire (if you are careful, and you don’t care about your retirement funds).

Spousal RRSP Example
A Spousal RRSP Example from Investing For Me

On the retirement side of things, a spousal RRSP is relatively straight forward. It allows your spouse and you to split your moneys for your retirement years.

The way it can be used for income splitting (this is really simplified, do not do this until you consult with a financial professional) is once you put money in a spousal RRSP your spouse can withdraw from it and it will be taxed in their hands after three years. The 3 year settling period (for lack of a better term) is the key to this, after 3 years the money is viewed to be in your spouse’s hands and thus will be taxed with their tax account. Something to think about, but not really a good use of the Spousal RRSP overall (you lose that RRSP room each time your spouse withdraws from the funds). As I said, do not attempt this before consulting with a Financial Professional.

Spousal RRSP
The Spousal RRSP

So let us give a cheer for the forgotten Spousal RRSP. It still can be an important part of your retirement plan!


Does Forced Saving Work ?

The title is paraphrasing a study from Stats Canada entitled, “Do Workplace Pensions Crowd Out Other Retirement Savings? Evidence from Canadian Tax Records” , which implies that forcing folks who don’t save for retirement, to save for retirement by increasing their Retirement Pension Plan (RPP) contributions works quite well. A better question is does forced savings work?

The study finds:

Is the Pension Tree’s fruit not good for You?

For workers who do not save much for retirement on their own, the $1.00 automatic increase in RPP contributions increased net savings by about $0.95. For workers who save regularly for retirement, the $1.00 automatic increase in RPP contributions was largely offset by a similar reduction in RRSP contributions. The study was designed in such a way that these results do not simply reflect program rules, such as contribution limits.

So if you make someone who doesn’t save much, save more, they save more, however, if you make someone save more, who already saves, they will save less? Wow

Given we have this interesting perspective on Money and saving, where does the new Ontario Pension Fund fit in this equation? Food for thought?


RRSP Rebalance Season

I have given up ranting about how the whole concept of “RRSP Season” is idiotic (you should be putting money in your RRSPs (if you that is how you want to save) all year long, not just in February), so if we assume that you still might want to put money into your RRSP now, maybe now is the best time to do a Rebalance of your Couch Potato RRSP Portfolio?

Mr Miyagi
Find Balance in Investing and in Life (and don’t stock pick)

Wait a minute, if you have a Couch Potato Portfolio, aren’t you supposed to just leave it alone, once your money is in there? Yes and No, is the short answer to that question. When you first put your money into your portfolio you made a decision about how you wanted your money to be allocated in the portfolio. There are many great examples of portfolios, but let’s go with a basic one:

Canadian Equities  25%
US Equities  25%
International Equities 25%
Canadian Bonds 15%
Cash  10%

Let us not get hung up on how the portfolio is set up initially, however, given a year has now passed since you set up your RRSP Portfolio (since this is RRSP Rebalancing season), and we have a look at the portfolio and are aghast to see the following percentages of our total portfolio:

Canadian Equities  15%
US Equities  35%
International Equities 33%
Canadian Bonds 10%
Cash  7%

Now that is an out of balance portfolio. As with Karate (in the words of Mr. Miyagi), in investing, balance is everything so here is a portfolio in dire need of rebalancing. What do I mean by rebalancing? Simple get your portfolio back to being close to what your initial allocations were (when you set it up, see the first list).

Rebalance? How?

  1. Cash out all of the funds, pool the money and restart the portfolio with our initial allocations. This is drastic, and fraught with costs, not a good way to find balance.
  2. Sell off enough of the US Equities and International Equities funds and spread the funds between the remaining members of the portfolio to find balance. This works well, and the Canadian Capitalist has an excellent spreadsheet on how to to help you do that. This way you find balance.
  3. Bring in external money and rebalance using that, and hence the thematic premise, of Rebalancing Season! If you have extra money to put into your portfolio, take advantage of this and rebalance your portfolio, without having to do too many sell orders! Balance is restored.

Remember in Investing always try to find Balance  ⚖, it is the key to a tranquil investing life. Enjoy the festive RRSP Rebalancing Season.


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