What are RRSP's? I'm no financial adviser so when investing in RRSP's, please be sure to speak to a financial advisor, but in the meantime, I'll give you my view on what exactly they are and what they do.
This will be helpful because I myself didn't fully understand what they were, until a couple of years ago, and still don't fully understand them. I even asked my wife if she knew what they were and other then hearing about them and people using them invest for the future, she had know idea what they were or how they worked.
Hence why I'm writing this blog to share a bit of knowledge for the average person whom is looking to invest there hard earned dollars into RRSP's.
To start, RRSP means Registered Retirement Savings Plan. Which is basically a plan implemented by the government for people to use as a way to defer there taxes for when they are retired. Ok, so what does that mean? Well, the reason people use RRSP's to save now is because every year, based on your income, you can save a % based on your income and park these savings in an RRSP. When you do this, the amount that you saved is a tax deferral on your income you made, which in fact lowers the amount of taxes you will pay each year.
This is great because when your earning a salary, your income is very high, and to get around paying higher taxes, you can actually invest your salary; your income, into an RRSP, lowering you possibly into a lower tax bracket, resulting in you paying less taxes. The best part is when you are retired, you can access your RRSP's; that is, withdraw what you invested, and it is at this time that you will pay taxes, but now, since you are retired, and are making an annual salary and have lower income, you will be in a much lower tax bracket, and you will pay less taxes.
What most people don't understand about RRSP's is when they go to there financial advisor and the advisor tells them to "you should invest in RRSP's", you really don't ask any questions on where that money is really going, because all your worried about is investing the maximum you can now, to lower the taxes you'll pay. BUT, what you should be asking is where your financial advisor is putting your income. Yes, your money is invested in RRSP's, but that money still needs to be invested somewhere, such as in a stock, or mutual fund, or both.
If you're going to be handing your financial advisor $10K, shouldn't you be concerned with where it is going, and if that $10K will be making a good return each year? This is where I believe people are confused about RRSP's, in that they aren't paying attention to how well their RRSP's are doing. Sidenote, this is why I invest in mostly in real estate, because this way I am in control of my investments, and it is on me to get the best return possible, in which I have ways to get a better return, such as improving the asset to increase the value, getting the maximum rents possible, and having minimal vacancies, all which will increase the return on my investment.
Here's also another side note, you can invest in real estate using RRSP. I don't know all the details on how to do this, but if you speak to your financial advisor, they can help set it up so you can buy real estate and have it held in your RRSP, deferring the tax you owe each year until your retired.
So the next time someone talks about how they have RRSP's and are saving for the future, tell them yes that's great, but maybe ask are they happy with the return those RRSP's are making, or, do they know the return they are making, or do they even understand fully what a RRSP is. Most likely, they've never even given it a thought to how well the RRSP is doing, nor did they know they could get better returns by investing elsewhere, such as real estate, they are just proud to be setting money aside not for the future... which is a good start.
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