Hey guys, Coach Julien here in this video. I’m gonna share with you the secret to RRSPs. This is the key ingredient that you need in order for your RRSP to be advantageous for you. In this video, I’m gonna go through two scenarios: one where an investor invests money in an RRSP, and one scenario where the investor invests outside an RRSP, so a regular account. Stay with me.
Hi, I’m Coach Julien, your wealth coach. My purpose is to help people when it comes to money matters such as saving money, investing money, protecting your wealth, and also planning money like budgeting. If this kind of topic interests you, then sign up to my channel, subscribe, hit the bell button, and you’ll be notified whenever I upload new content.
I often hear people say that RRSPs are not worth it, RRSPs are crap, RRSPs are a scam, and all this because you have to pay taxes when you pull money out. It’s unfortunate but true that you are taxed when you pull money out of an RRSP. This is true, but it doesn’t make RRSPs crap and worthless. There is merit to this program, and if you use it properly, you could really build wealth fast and be well on your way to financial freedom.
The RRSP program is good for a lot of Canadians who don’t have the discipline. It’s a program that doesn’t make it easy for you to take the money back out, so it secures it for your future and for your retirement. That, in itself, has merit. In this video, I’m going to go through mathematically what happens when you invest in an RRSP versus if you don’t use an RRSP for your investment. I’m going to show you the two scenarios, and then you’ll see what the key ingredient is for the RRSP to work for you.
The first thing that we need to go through is the assumptions I used to compare the two scenarios. The key assumptions, each situation is different, so I’ve used these assumptions to make my analysis, but your situation may be different. You may be starting later; you may be older; you may have whatever your situation is different. That’s why it’s important that you get advice for your specific situation. That’s why I offer one-on-ones with my audience. So feel free to do so. Again, my Calendly link is below, and you can book a one-on-one with me or talk to a financial advisor. But just don’t do this on your own; make sure you crunch your numbers.
So here’s the result. Here we have the amount, the value, the after-tax value, and here you have your age. So you start at zero, and you’re building. You can see that there’s a difference between the RRSP and non-RRSP scenario. You can see that there’s a gap here; it’s over a hundred thousand by the time you reach retirement. Again, these are after-tax dollars. Let’s say at death, you have a million dollars; your last tax return will show a salary of a million dollars, and you will be taxed over 50% on that, so that’s 500,000. Never forget that. That’s why you have this widening gap here. But then some magic happens when you reach around 70 years old where the green line is surpassing the blue line by far. By age 94, you’ve got a million bucks here in the RRSP scenario versus zero in the no-RRSP. That’s a big, big difference.
What is the secret to this? What makes this huge difference possible? Before I get to the secret ingredient, I just want to mention that some other videos to watch after you watch this one. I’m going to show a link up here that has all of my RRSP videos, including what are RRSPs, RRSP withdrawal strategies, how to take money out, RRSP contribution limit, how it works. I talk about what kind of investments you should have in your RRSP versus TFSA versus non-registered accounts. I also have a video that’s very important on income splitting strategies. This is very, very useful when you have one spouse that earns more than the other.
Here’s another graph; it’s the same graph as before. The blue line is exactly the same; the green line is shaded a little bit. The green line is an RRSP scenario where the person invests the tax credits. If you don’t invest that tax credit, it’s almost pointless to have an RRSP. Check it out because here’s where the lines cross. They cross at over 85 years old, and you know the average lifespan in Canada is something like 82. It’s 84 for females, 80 years old for males.
The secret ingredient here, the point is that you gotta invest the tax credits. Super, super important. If you don’t, it’s almost like mathematically pointless. And let’s clarify, investing can be paying down debt on an appreciating asset, like you’re paying down a mortgage. Other points to remember is that you should consider capital gain investment for even better performance. If you use capital gain investments, pay taxes only when you start selling your investments, and I have videos on those types of investments. There’s one on Berkshire Hathaway, now available in Canadian dollars, and there’s also a video on Warren Buffett investments for beginners. So I’ll flash those up here.
I want to share with you my step-by-step guide for beginner do-it-yourself investors. That’s available in the description of the video, so take a look at that. I’m also going to include a link to my guide, “How to Save Money: Critical Habits to Build Wealth.” And I’m going to reiterate that you need to get advice because every situation is different. So make sure that you crunch your own numbers. I’ve crunched numbers based on a bunch of assumptions, but those are not necessarily you. That’s why I offer one-on-ones with folks. So you can book one-on-one with me; there’s a link to my Calendly in the description of the video. We can take a look at your situation, your provincial tax situation, and we can look at how to optimize your RRSP and RRIF situation. Don’t forget to subscribe because I have more stuff coming, more videos upcoming. Hit the bell button; you’ll be notified whenever I upload new stuff. Thanks for watching, and we’ll see you real soon.