Friday, October 19, 2007

Friday - Odds and Ends

A few things for today.

I added a new link under the "Useful Links" section called the "Stingy Investor." It is a great site with some interesting investing ideas and other investing information.

Reader 'wombatos' sent me this link to a CBC article on how many Canadians are not preparing for retirement, are DEEP into debt, and do no saving. Scary stuff but it isn't news to me. Unfortunately I meet people everyday who have failed to prepare and are living the Kraft Dinner retirement.

"The survey commissioned by CGA-Canada found that a quarter of those who answered didn't think an interest rate hike would hurt them financially. The survey also found that about a quarter of Canadians don't save any money at all, even for retirement. So it came as little surprise that about one in five said they wouldn't be able to handle an unforeseen expenditure of $5,000. The accounting group said Canadians are increasingly relying on borrowed money to finance day-to-day living expenses."


On a personal financial planning note, the deadline is November 1st to put in your T1213 form to have less tax witheld at source. This is important if you are a salaried employee and make RRSP contributions, pay spousal/child support, and/or make charitable contributions among other things. My mentality is that we shouldn't give the Federal government an interest free loan by overpaying our taxes on every paycheque so fill out the form and get it in before November 1. The CRA will reply with a letter which you will need to give to your employer. You will get your tax return all year long!

15 comments:

bcj said...

More sloppy reporting from the good 'ole CBC. According to the article:
"a quarter of those who answered didn't think an interest rate hike would hurt them financially."
"So it came as little surprise that about one in five said they wouldn't be able to handle an unforeseen expenditure of $5,000."
How's that for flawless logic?

zonk said...

bcj

"The survey also found that about a quarter of Canadians don't save any money at all, even for retirement. So it came as little surprise that about one in five said they wouldn't be able to handle an unforeseen expenditure of $5,000."

25% of Canadians don't save money
5% of them (erroneously) believe they can raise $5000 (credit?)... that is assuming they are a subset of the non-savers

jesse said...

The full CGA report is here. It is worth a read, for those truly interested in the subject.

mohican said...

Thanks for the link jesse. It really is a great report. It raises many of the same concerns with personal finance that I talk about here on a regular basis with great data to back up their case and to provide evidence of the cloud of indifference that many Canadians inhabit regarding their poor savings habits, overconsumption and overindebtedness. Unfortunately, very few people will read it.

patriotz said...

a quarter of those who answered didn't think an interest rate hike would hurt them financially.

Well if you are net long fixed income and cash, you won't get hurt by a rate hike and will be better off in the long run (like me).

That may well come close to 1/4 of households, but probably not all are the same ones who gave that answer :-)

Samuel said...

hello there!:

could anybody please explain to me why is it better to put money into an RRSP than, say, put the same amount into a regular savings account or a GIC?

wouldn't i have to pay taxes in the same amount when using any of these types of accounts?

many thanks!

mohican said...

samuel said: could anybody please explain to me why is it better to put money into an RRSP than, say, put the same amount into a regular savings account or a GIC?

The benefits of investing within an RRSP account are twofold.

1 - Your investments grow free from taxation until they are withdrawn. Over a period of time this increases the potential rate of return quite substantially. For example, if you earn $1000 of interest on a GIC outside an RRSP account you would need to pay tax on those earnings. This tax-owing may be up to half ($500) of the income - depending on your personal tax bracket. That same income earned within a RRSP account requires no taxes to be paid.

2 - Any moneys that you deposit into an RRSP account cause you to receive a deduction equal to that amount from your income. This usually results in a sizeable tax refund. This is a small reason to put money into a RRSP account as you will be taxed fully when you withdraw the money.

RRSP accounts are all about tax-defferral and tax-management of your investments. If used properly they can be a great benefit.

Samuel said...

many thanks for your answer, mohican, and for taking the time to explain this.

regarding what you are saying:

"That same income earned within a RRSP account requires no taxes to be paid".

so, i would only pay taxes, when it comes to an RRSP account, on any income (earned interest) above $1000?

or i would pay the same amount of taxes (as with income generated from a GIC, etc.) but only later and always in proportion to my tax bracket at the time of retirement?

thanks again, best!
s.

beta said...

The survey also found 20 per cent were raiding their RRSPs before retirement — mainly to pay for daily living expenses.

WTF!?!? I knew people were spending their retirement, but I didn't imagine that so many were robbing their own RRSP's to do so. Insane.

freako said...

or i would pay the same amount of taxes (as with income generated from a GIC, etc.) but only later and always in proportion to my tax bracket at the time of retirement?

Yes, sort of. Whatever you pulled out of your RRSP is added to your taxable income for that year. It doesn't matter if it is principal, interest, dividends or capital gains. Those distinctions lose meaning once inside the RRSP.

Warren said...

WTF!?!? I knew people were spending their retirement, but I didn't imagine that so many were robbing their own RRSP's to do so. Insane.

Wow, you have to wonder how much of the government's recent budget surpluses are due to these same people who have no idea what "marginal tax rate" means.

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Clarke said...

I think there is a bit of difference between retirement planning and financial sanity, though both are related issues. Many Canadians take on way too much debt and do not save enough, or even anything. This is in my view the principal problem.

I think the macre environment does play a role though. As I have previously stated, real incomes have been pretty stagnant for the last few decades, and there is greater income inequality. So, poor management compounds the problem of shrinking cash flow.

first_time_buyer said...

"to have less tax witheld at source"? I suppose this is for year 2008 tax returns as it is too late for 2007. By the time, I would get a reply from CRA, 2007 tax year would be over as far as my employer is concerned. If this form is for 2007 indeed, when can I file the form for 2008 and would I need some kind of agreement with my bank to show monthly contributions to RRSP or just stating that I would invest $x in Dec 2008 is sufficient? Pls advice.

mohican said...

ftb - the link provided in the body of the post is the form that you need to have sent in to the CRA by November 1 for the 2008 tax year. The form indicates what you are required to send to them. Typically you need some proof that you have an agreement with your bank/investment dealer to make regular contributions to an RRSP.