One aspect of retirement planning that has escaped the eye of investors in Canada is the Registered Retirement Savings Plan, and its siblings, RRIFs, LIFs and others. The whole retirement planning mob in Canada has created a monster when it comes to retirement savings.
The biggest issue surrounding registered plans in Canada is the misconception that has been created, which suggests that saving in a tax-sheltered plan is an efficient and financially sound way to save for retirement. In my opinion, nothing can be further from the truth. And you don’t need a whole bunch of fancy financial models and calculators to prove my point.
The last ten years have been very good to investors who bought quality stocks and hung on to them for more than 10 minutes. Let me give you an example. In 2014, Microsoft’s stock was trading at around $50. Now it is trading pretty close to $500. If I invested $10,000 in MSFT, I would now have around $100,000. A capital gain of $90,000. Had I put it in my RRSP, I would have likely gotten, say, a tax refund of around $3,000. If the shares are now in my RRIF and I take the cash out, I have converted a capital gain of $90,000 into income. It’s not that unusual, given the way stocks have performed over the last 10 years including Google, Tesla, Meta, the list goes on and on.
The false conversation around the time value is not an issue here. So, can someone explain to me on which planet converting a $90,000 capital gain to income makes any sense? The gain dwarfs the tax relief. It’s just a tool to generate fees and assets for financial institutions in Canada.
I will refine this argument and hope to show over time how Canadians have been hoodwinked into flowing their money into the registered plans, destroying their financial freedom and retirement planning.
More to come on this topic.
