Huge RRSP Mistake to AVOID - You will LOSE 40% of Your RRSP

everybody welcome to today's video we're going to be talking about how you're going to be losing 40 of your rrsp now i'm not just going to be saying why you're going to be losing 40 of your rsp i'm going to actually show you exactly what you can do about it and so it's not all bad news and if you're new to this channel please feel welcome to head on over to my youtube channel where there's all kinds of videos on everything to do with retirement planning estate planning how to manage your money how to invest your money in life insurance or how to use life insurance if you're a business owner an individual or family i think you're going to get a lot out of the videos that i've got on my youtube channel so let's get to it okay so what i'm going to be sharing with you today is something i think that is most likely the most overlooked planning issue which is about anybody that's planning in their retirement and i say that because i've had over 20 years of helping people plan for retirement and when i talk to people that come to me for the first time i see this just about all the time this is one area that's most overlooked and the thing is is as you are more successful in saving money towards your retirement this issue just gets bigger and bigger this mistake that you're making just continues to grow until it's awfully painful and very difficult to fix so let's get into what it is that biggest problem is and it's taxation now you're probably thinking wait a minute that's not my biggest problem well i'm not talking about the tax you pay on your salary right now i mean after all that's why you are investing in an rrsp to begin with because you're trying to lower the income tax you're paying if you look here in the chart you'll notice this is the ontario marginal income tax table on the left-hand side is the green area that's your income going from the least amount and as you go down the page the income's going up so don't get confused by that but as essentially as you make more money you pay more income tax that red area is the income tax you pay on the graduated amount that you make so as you make more money you pay more in tax the the other tax tables on the right are really about different kinds of income tax but we're going to be talking about exactly what this means to you when you pay income tax so as you're making more money you're trying to save money so that's that reason why you deposit money to an rsp to make your tax rate go down so you can see that arrow was saying let's say you're starting at 53 taxation and when you make an rsp contribution that lowers your income tax so that's one of the reasons why you invest in an rrsp now the other reason of course is you're trying to put money towards your retirement and this is a sound thing to do it's what everybody tells you to do it's what you ought to be doing because the last thing you want to do is be in retirement with no money to retire so the it's what you're doing is right but the problem is we're only mostly focusing on that area mitigating taxes year over year and so what we're really talking about is let's just quickly review and this is going to share with you and when you see this i want you to think about your own planning and see if this is true in your situation if it is put your comments below because i want to hear if this is true of you as well because i love hearing your comments by the way so phases of retirement let's look at this together this is the accumulation phase 18 to 59 you're working you're saving money you're paying down debts that's the sort of competing agenda the retirement zone have a look at this video up here to talk about what the retirement zone is and then you're in active retirement you're using your assets and then you get to the final spot which is legacy this is the biggest problem this is the biggest mistake right here everybody focuses on those three boxes but very few people focus on the very end because i know a lot of people say well i'm dead anyway what do i care well let me ask you this are you the kind of person that wants to pay the least amount of tax year over year to revenue canada and so you do all kinds of different ways to try to lower your income tax including making an rrsp contribution so that those are things that you're going to do but then when you pass away all those rrsps are going to be included in your final tax return so if you're married it rolls over to your spouse and on the last death of a married couple that amount of what's left in your riff is going to go to taxation so about 40 even more than that depending on how much money you have in your riff so let's look at this together revenue canada is reaching for your money when you pass away so i'm gonna lead you to a website where you can do this for yourself and you're actually going to be able to go online and figure this out based on your own numbers and i'm going to give you my numbers okay so let's dig in this together okay you're going to go to get smart about money dot ca get smart about money dot ca this is an independent website run by the ontario securities commissions all the financial institutions pay money to them to develop this website so you will see no advertising on this site about any financial institution so it is totally a place where you can go without any fear of having to worry about any advertisements everything about financial planning retirement planning different types of insurance products or investment products strategies and even calculators and tools and so where you're navigating is to calculators and tools and down at the bottom it says riff withdrawal that's where we are in this particular i'll just actually let's click on it right now that's where you are and that's where i want to take you today so as you scroll down here you're going to put in your rif balance so imagine you've or consider you've invested in rrsp you're contributing all along and you get to an age where you're going to start receiving an income from that that's going to be you converting it your rsp to a rift so let's look at that let's say you have a million dollar portfolio you put whatever value you have or what you think you're going to have at age say 65 that's the next box let's say somebody retires at 65 and the average mortality rate that's a fancy word for when people die in canada is about 86 so i'm just going to put 86 you know what i'm going to put 88 just so we can put a couple more years in there and estimated annual rift growth most people that are investing money at in their retirement aren't trying to hit home runs with their rif accounts they're actually trying to conserve their money and grow it ahead of inflation even though inflation is going right now at more than four percent i'm just gonna leave it for four percent um for now if you put it at more than that that just means your balance is going to be bigger so let's just stick with that hit calculate the next thing is just change this drop down menu to all rows and you can see here you're 65 or the million a million dollars and you end the year with 999 000. that's because the minimum withdrawal for a 65 year old with a million dollar account is 40 000 but you made almost 40 000 in your growth you can see as you're going through the years you're made 40 or your withdrawal a little bit more because that's how riff works it's based off of your age and each year that you get older you have to take a little bit as a percentage a little bit more each year so you're going to see this number continue to go up what do you notice here in year three of the retirement age here at 67 the withdrawal is greater actually it's year two the withdrawal of 41 000 is greater than the actual growth so you're actually now withdrawing more money than your portfolio is making so you're going to see the balance begin to drop down as you see here so scroll down all the way to the end we're saying age 86 let's just take age 88 this person passes away and they have 533 535 000 in their riff so what happens to somebody when they pass away with money in their riff and this is the last death either you're if you're not married and you're a single person then all of that money gets added to your terminal tax return and that's how much money you earn that year so what do you think the tax rate is on five hundred and thirty five thousand dollars it's more than forty percent but let's just say it's forty percent so my question for you really is very simple what do you plan to do to lose 300 000 or more to revenue canada at the time of your passing now some people legitimately have told me i don't care on i've passed away i don't care but then there are other people that say i spent my entire life trying to pay less money as the lowest amount of money i can to revenue canada i don't want to give it up when i pass away too so what can i do about it that's important so that's the question i have for you there's your forty percent it's a huge amount of money that goes to revenue canada if you're not going to do something about it and just about everybody that i've ever come in contact with want to mitigate the amount of money that they're losing to revenue candidates more money goes to your beneficiaries to your charities to your causes this is really important if you're maximum funding your rrsp then you have money for life insurance and now you're going to say oh he's going back to life insurance but i got to tell you life insurance is the magic here in estate planning this is really what we're talking about is estate planning how do we lower the income tax to your estate so look here the life insurance needs basically are final needs so that's like funeral costs right eliminating all debts and you have to pay off your debts when you pass away taxes on your estate the biggest taxes on your estate are going to be real estate that you own and any money in registered accounts that you'll have to pay tax like a rif account and then obviously you want to be able to do what's called plan giving giving money to your beneficiaries children charities causes these are things you want to do and i don't think revenue canada is one of your charities is it so let's talk about what you can do about that so so many people see life insurance as an expense when really life insurance multiplies your money it takes one dollar and turns it into ten dollars now of course when you're older it doesn't take one dollar and turns it into ten it might turn one dollar into five or one dollar into six but the idea here is it's multiplying your money so if you can take some of your money today and have it multiply over the years so that at some point that life insurance has grown to we're talking about participating whole life insurance has grown to the amount of money it's going to cover off all your final leads paying your debts paying your tax bill to revenue canada and then to your charities and your causes and your beneficiaries as much as you can afford then you want to take some money today and try to affect lowering the taxation in your estate this is tax-free money from a life insurance policy your estate is paying for tax dollar or paying for all the taxes after tax dollars it's a very painful and expensive way to pay revenue canada now the way that you find out about how much money you're going to need to offset all the taxes that would go to revenue canada largely due to your rif into real estate is get a financial plan done i say it in every video financial plan is seeing the outcome of your planning decisions before you commit to them it's such a powerful exercise to go through it doesn't take up much of your time any financial advisor that's doing great work does financial plans for their clients i do them all for my clients they're included in what it costs these are not extra costs to get them done although if you wanted one of these done there are advisors that don't do manage money and all they do is do planning you could go to them and spend four or five thousand dollars to get them done they're included in what i do for clients so this is the way in which you can solve this is to start working with advisor today to figure out how much money your estate is going to owe in taxes at any given year going forward and then put insurance in place today that's going to grow over time to meet the demand or the need to pay off or pay down as much as you can afford the the expense to your estate i hope this was useful for you i really enjoyed sharing this information with you remember we take care of your wealth management so you can take care of what's most important to you there's my contact information if you have any questions please feel welcome to reach out to me i look forward to hearing your comments in the videos below go ahead and share and like this with anyone you think that really needs to see this information and i look forward to seeing you in the next video thanks for watching take care

Channel: Aaron Wealth Management

Views: 54,891

Keywords: Huge RRSP Mistake to AVOID - You will LOSE 40% of Your RRSP, rrsp, do i have enough money to retire, retirement, rrsp investing, how much money do i need to retire, rrsp canada, estate planning, business owner, financial planning for business owners, wealth management, advice for business owners, life insurance, retirement planning, aaron wealth management, retirement in canada, How much to retire in canada, Registered retirement savings plan

Id: e91Y95U2qfE

Length: 13min 9sec (789 seconds)

Published: Mon Apr 25 2022