Jakey's Birthday and the Birthday Train Cake

Twas the night before Jakey’s  Birthday, and please let me explain,

Mommy Stephanie was in the kitchen, making Jakey a BD train.

The train was from a mold, that makes 9 train cars out of cake,

And while the cake was baking, Mommy made a track for little Jake.

Each train cake was decorated with candy and with icing galore,

And if the boys upstairs were not sleeping they would say, ‘put on some more’.

There was Licorice and Smarties, that’s M&M’s as the Yanks would say,

And, all in all it looked like it was going to be a great Train Cake Day.

Finally the next day arrived and here came all the guests,

There was Grace, the two Brother Bens', and Baby Liam and all the rest.

As with every birthday party, there were balloons and hats and toys

And when it was all over, a great time was had by all the girls and boys.

Happy # 2 Jakey!!!

Shame on you Gordon Pape: OAS is for People in Need, Not People in Greed

Today is Family Day in Ontario, so, I had lots of time to read the papers. On the front page of the Business Section of the Toronto Star was an article by Gordon Pape entitled TFSA or RRSP? Try these five tests. The full article can be found online at: http://www.thestar.com/business/personal_finance/2013/02/17/tfsa_or_rrsp_try_these_five_tests.html

To summarize, Mr. Pape says there are five tests to determine which one of TFSA or RRSP you should choose. In four of the five tests, a major consideration is the fact that if in retirement, your net income is higher than $70,954 than the government claws back your Old Age Security (OAS).
Oh spare me your selfishness!
Using the RRIF Calculator in TaxTips.ca, I said that the person in the example had $950,000 in the bank and wanted to get at least $70,950 a year from their current RRSP when they turned 71.

The results show that this person will have an income of between $70,950-$81,555 per year until they turn 86.

However, you are entitled to keep removing funds from your RRIF until the age of 91. So, if we take Mr. Pape's money saver and re-calculate his/her withdrawals so that he/she keeps getting withdrawals until the age of 91, and, keeps losing his OAS up until that age, it turns out he actually had $1,280,000 in RRSP's at age 71, and he received an income of between $76,068-$94,464 per year until he /she turned 91.

Does a person who has almost $1.3 million in savings need another $544 per month from Canada, or is the country better off giving that money to people who really need it?
Keep on clawing back Canada, and Shame on You, Gordon Pape!

The Gettys Mother Burg Address by Lord Buckley

As my salute to President Lincoln, on his birthday, I am pleased to present you with Lord Buckley's wonderfully brilliant interpretation of The Gettysburg Address.

RRSP 101 or What Uncle Louie Taught Me 35 Years Ago

It's that time of year again folks. RSP season. (Note: when you purchase an RSP, it is called an RSP. When you then declare it and file it with your income tax return, it becomes an RRSP or a "R"egistered RSP). Many people debate on whether it is good or bad to invest in an RSP.  Shockingly, if that's a word, only 26% of eligible tax filers contributed to RRSP's in 2010 according to Statistics Canada (latest stat I could find).
This is silly folks, and here's why.
Uncle Louie told me the following in the mid-70's, and Uncle Louie is the family expert on finance. He was a working man all of his life, and yet he and Auntie Kaye lived a wonderful prosperous life without any money concerns until they passed away. And, left no debt, and, on the other hand, an estate upon their passing.
Now, back to the story. Uncle Louie said the following. If you do not have any money to put into an RSP, you should do it anyway, and here's how. First, go to your bank and borrow the money. Then, put it into an RSP. Then file your taxes, get your refund, use it to pay off a reasonable portion of the borrowing and make sure that you pay the rest of it off before next RSP tax time rolls around so that you can do it all again.
Watch the math:
Let's say you have $60,000 in taxable income (before any RRSP investments). Here is what Ernst & Young say you will pay in taxes on their website at http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2012-Personal-Tax :

So, let's use Ontario as the example. If you live in Ontario, then on your $60,000 taxable income, you are donating $12,002 to Mr. Harper and Ms. Wynn to help keep Ottawa and Ontario afloat.
Now, your RSP contribution amount, is 18% of the previous year earned income. So, let's say that's probably around $12,000.
O.K., how will $12,000 affect your tax payable. So, below:

Now, your tax payable is $8,264. That means that while you think you contributed $12,000 to an RSP, you actually contributed $8,262, and the Government(s) contributed $3,738. Yet, you have a RSP savings account that says $12,000 in it. In other words, on the day you contributed, you got interest of 45%. However, you do have to pay back the loan. 

So, let's do that math. If we use the major banks as an example, the interest on RSP loan is approximately 4%. If we use the Golden Rule of RSP Payback, and pay the loan back in 12 months, just in time to borrow again, the monthly payments are $1,021.80. Or, $261.60 in interest. But, remember, the Goverment(s) just sent you a cheque for $3,738 which covers almost 4 months of payments. 

So, what's the bottom line. You put $8,262 in principal plus $261.60 in loan repayment amounts and wound up with a savings account worth $12,130.44 (The extra $130.44 is interest earned at a measly 2%). This is a no brainer.

Further, if you start in your 20's, you retire wealthy, at least wealthy enough not to have to worry about whether the Goverment(s) will have any money to help you in retirement, and, without having to burden the next generation with your retirement needs.

Drop what you're doing, run to the bank, buy an RSP and thank Uncle Louie for his sage advice!