Monday, December 16, 2013

The Trouble with RRSPs

When you are building up money in an RRSP, you do not realize the problems it will be withdrawing money after you stop working. My budget outside of tax is increasing around 2% a year. However, add in tax and it is increasing at a rate of 8% a year.

When you withdraw money from an investment fund after you stop working, you are supposed to count on withdrawing 4% of the fund a year and earn 8% a year. I am lucky that I am only withdrawing currently at 3% of my total portfolio. However, this will not last, not with taxes increasing so rapidly. They are the biggest item on my budget.

My projections shows that RRIF withdrawal amounts will hit a peak at age 71 and because at that age you have to withdraw so much that my RRIFs will stop increasing in value and start to decrease. At age 71 you have to withdraw some 7.38% of the fund. The percentage climbs from there. RRIFs are to end at age 90. With people living longer and longer, you would think that this age should be raised.

The problem for older people and the government may be that there will be very old people with little money. I know that both my parents and in-laws spent a lot of money in their last few years of life. I am talking about money in the $100,000's range.

On my other blog I am today writing about Magna International Inc. (TSX-MG, NYSE-MGA)...continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

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