28 - Sunday, February 4, 1990 - North Shore News

66 Let me tell you
about the man with
$190,000 in

RRSPs and why
that’s a problem.9§

ike most of us. for years he’s been
industriously socking away his
cash in RRSPs. Very soon that man
is going to turn 77. Atthat point,
the tax holiday on his
$190.000 ends - that’s
where his problems begin.

Folding those RRSPs intoa RRIF
or annuity spaces out the tay bite.
but our friend already has substan-
dal incame from other sources —
investments, Canada Pension, Old
Age Security, employer's pension.
and other sources. In fact. more
income is precisely what he doesn’t
want because it will simply push
him into a higher tax
bracket. The irony of
his dilemma is that,
years ago when he was
first contributing to
RRSPs, he was ina
lower tax bracket: now
that he has to pay tax on
those funds, he finds
himself in a much higher
tax bracket. The irony?
If he had ignored RRSPs,
he might well have paid
less tax in the end.

His problems don't stop there.
either. The government has a new
“clawback” provision on old age
pensions, requiring those recipients
over a certain income to pay back
all or some of their pension! Be-
cause Of an unwise investment in
RRSPs. he's likely to pay more
income tax and lose some of his
social benefits.”

“Tax deferral isn’t the

only reason to choose — or
not choose — an RRSP.

Take, for instance, the
case of the young couple.”

“Early 30s. He works for the
provincial government; she’s the
owner/manager of a landscaping
firm. They have one daughter and
have just bought a home, their first.
They have a monster mortgage but
have manuecd to save about $5,000
in spare cash.

One day they asked me about
RRSPs. My first question was
“Why?". Their biggest financial
worry right now isn’t retirement:
their biggest problem is a mortgage.
Paving it down with $5,000 now
could well save them tens of
thousands tn interest over the next
20 vears. For these people, buying
we RRSP is ticertiinty. That
decision should be aiade in tight of
the fofal finanecal picture.

“HOW TO TRANSFER
ANE

ae
you transfer well before the -

life. They're a financial
tool, and should be used
with regard to vour overall
financial situation. Some-
times they can be used very
sensibly. Take for example
aman who used his self-
directed RRSP to fund his
daughter's mortgage.”

“He's a recent widower in his
middle 50s with a string of invest-
ments, a Mertgage-free home and
generally a solid financia! future.
He and his wite had built up quite a
nest egg in various
RRSP accounts
over the years.

His daughter has
a good job but a
growing family
with ever increasing
financial demands.
For years they've
been trying to put
together a down-
| payment to get

them started in the
house market. But

each year the increasing cost of hous-
ing outstrips their ability to save.

Our widower was surprised to
learn that if he consolidated his
RRSP savings into one self-directed
RRSP, he could in fact fund his
daughter's mortgage.”

‘“What’s my point?”

“An RRSP. whether new or
simply an annual contribution, can
be asmart move. But not everybody
needs an RRSP right now, right
today. Its a question of considering
each case individually, not a ques-
tion of rushing out and plonking
your money down.

In the banking business, it's a
heresy to say things like that, but
that could well be the difference
between us und then — we're not
here just to take your money. We're
here to help you with it.

We're also here to answer ques-
tions. In fact, we have a special
Retirement Planning Department
that does nothing else but answer
questions. 986-4321."

rocedure takes

RRSPs
ATA
GLANCE

a
Anybody can open or
contribute to an RRSP.
Whether you should
depends upon your own
financial circumstances.
a
RRSP contributions may be
deducted from your total
income to reduce taxable
income. For instance, if you
make $35,000, your tax
bracket is 26%; contribute
$7,500 to an RRSP,

$35,000
-~$ 7,500
= $27,500
Your tax bracket is
now 17%
7 8,
There are limits on how
much you can contribute
in any one year: 20% of ©
your incéme up to $7,500.
"IF you're part of a pension.
“er supercnnuation plan; :
ver, you can contribute“
_ only $3,500 LESS the .-:
“payments you've made to.”
the plan throughout the °
year. IF only your. employer.
“ erunion contribute fo your
-* gompany pension (you
make no contributions);

ibute 20% of ..
9 $3,500.

“RRSPs are not a tax shelter; :,
= they are o tox deferral.
*.You're not "saving" tax,

you're postponing it
‘intl later.

6G An RRSP can
be a smart move ...
but not everybody
needs an RRSP
right now, right

today. 99

\

—

A Better

66 Take a look at the two graphs
waiting until the last minute to mz
you to make one this year.

Graph | shows the difference
RRSP as opposed to waiting until
$1,200 contribution. Comparing th
graphically illustrates the advanta,

If contributing each month is
what happens if you make your co:
of the tax year, not the end. 99

Twelve monthly deposits earn mor

C Contribute $1,200 at end of yar QC
Assumes 9% interest, paid monthly, compoun

$7,000

YEAR 2

Depositing at the beginning of a ta.
at the end.

© Deposit $1,000 on December 31st, 1990.
Assumes 9% interest rate paid annually.

$60,000
$50,000
$40,000

$30,000

$20,000

10 YEARS