RRSPs Aren’t a Scam, But This Mistake Is Costly | Ep. 55

RRSPs are not a scam, but using one without a withdrawal plan can create an avoidable tax problem.
In this episode, we explain when RRSP contributions help, when they don't, and why retirement withdrawals need to be planned years in advance.

What I cover:

• Why an RRSP is best understood as a tool for moving income between years
• The mistake people make when they spend their RRSP tax refund
• How one client’s decision may have cost approximately $12,000
• Why taking no RRSP income in early retirement can backfire
• How RRIF withdrawals, pensions, CPP, and OAS can stack together
• Why automatically maximizing your RRSP is not always the best strategy

Chapters:

00:00 Are RRSPs a scam?
01:12 What an RRSP actually does
02:18 The problem with spending the tax refund
04:40 The RRSP decision that may have cost $12,000
06:35 Why the withdrawal strategy matters
08:28 How a large RRSP can become a retirement tax trap
13:12 Using lower-income years for withdrawals
25:02 When maximizing your RRSP may be the wrong move

RRSP planning is not a way to get a tax refund. Deciding when you want to recognize the income and pay the tax is what they're designed for.

Subscribe for more practical conversations about Canadian retirement, tax, and financial planning.

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Transcript

Tre 0:00

RSPs" are a scam and you shouldn't use them," is what somebody said to me. let's talk about why that's wrong. Okay. So first off. I, I understand why people would say that, we'll talk about why they would say that.

Sierra 0:18

I need the understanding

Tre 0:20

why. Why do you they would say that? that?

Sierra 0:23

Because they they think the government is out to get them.

Tre 0:27

I mean, that's beside the point. Okay.

Sierra 0:30

It's one of those

Tre 0:31

podcasts, um,

Sierra 0:33

conspiracy. No. So a

Tre 0:36

a lot of of people, and it's, it is not, it's not a small amount of of people.

Sierra 0:40

Really.

Tre 0:40

Yeah.

Sierra 0:42

what's going on there?

Tre 0:44

Because financial literacy is very low. So what happens is people contribute to RSPs all of of their life, and then they will go to take the money out, And then suddenly the government's taking 30%. Well, that's a scam. that's a scam.

Sierra 1:00

They're scamming me. They're scam me my my money in

Tre 1:04

here. Exactly.

Sierra 1:05

Yeah. I

Tre 1:06

see. Why, why is it not a scam?

Sierra 1:09

Because all the rules are available to you and you didn't read the rule book. I know. It

Tre 1:14

it's sucks.

Sierra 1:14

I didn't read it either, to be but

Tre 1:17

basically it's a case of RSPs are a are a tool, and I've already said this many on podcast, but RSPs are a tool to move income from one year into another.

Sierra 1:28

Mm-hmm.

Tre 1:28

That is all they are are very, very good at. So, or how people should think about it anyway. anyway.

Sierra 1:35

So

Tre 1:36

when you are moving income from years when you're working, you get a tax refund often. Or think it, don't even think about it as tax refund. You don't have to pay that tax on dollar you're moving that income to to future years. But do most people go do their tax refund?

Sierra 1:55

Spend it. Spend.

Tre 1:56

or spend it, right?

Sierra 1:57

Of course.

Tre 1:58

Or if you're self-employed, it is just less tax that you have to pay. And then they will go and

Sierra 2:04

spend Spend it, right, not

Tre 2:06

do anything with the tax that they should have have paid, but didn't pay. Right.

Sierra 2:11

Yeah.

Tre 2:11

So that means that they don't actually see full benefit an RSP because the benefit is that you, it's almost like you get to invest and save more because you were were getting getting this tax... you're not not paying this tax. Mm-hmm. But when people don't, that's when they, they don't save enough and they complain that, hey, my million dollars in my RSP that I've, you know, religiously invested in is actually only 650 $700,000.

Sierra 2:47

Yeah,

Tre 2:47

At the end of the day, because of all the tax and and stuff like that. Well, that a lot a lot of people.

Sierra 2:53

I bet.

Tre 2:54

You need to plan better, right? Because when you're RSPs you have have to think about the withdrawal side of that. And this is where do I actually expect the average person to do this? No, but you have to then, well, you face the consequence. Either way, government gets their money, but you have to... Well, no, I'll challenge you. You, have to not think about RSPs as a tool to get a tax refund. If that is how you are viewing RSPs, then you are likely heading for trouble. Because that is not what RSPs do.

Sierra 3:31

Or some people just think of it as a type of savings account. Like, do, do they not? I feel like people would say that when I worked at,

Tre 3:39

That's extremely low financial literacy. I'm not go there. But yeah, some people might.

Sierra 3:45

It's like they don't understand all the... Yeah, the benefits the tool or they just don't understand tool they're using.

Tre 3:53

Yeah, don't understand the tool they're using. They're told,

Sierra 3:57

They're using using a mallet for a nail a wall it's like, you know,

Tre 4:02

get around, run

Sierra 4:03

into

Tre 4:03

issues.

Sierra 4:03

Is that a good analogy?

Tre 4:04

good

Sierra 4:05

good

Tre 4:05

enough. I don't know

Sierra 4:07

I do

Tre 4:07

how do use the the screwdriver on a nail or something

Sierra 4:09

that, but

Tre 4:10

amount

Sierra 4:11

works. I was thinking because it still kind of gets the job done, like you're saving money. You're investing

Tre 4:16

Yeah, but Yeah, but

Sierra 4:16

you're using it inappropriately, so it's like. You're You're gonna end up with hole in the wall, potentially if you're, 'cause you've got a big mallet and, Yeah. See how deep

Tre 4:25

is? Yeah. You've talked about that. I

Sierra 4:26

put a lot of thought. Absolutely. Very Very quickly.

Tre 4:28

Yeah. Okay. Well maybe that's a good, that's the example we're gonna use now on.

Sierra 4:31

That's a great illustration.

Tre 4:32

from The rest this episode, the example we're using

Sierra 4:34

Mallet on the nail.

Tre 4:35

Yeah. But I ran into recently with a client that they were heading, they had one year left of retirement,

Sierra 4:43

of

Tre 4:43

working until they they retired Of of retirement.

Sierra 4:46

Yikes.

Tre 4:47

This is when they died. Yikes. Yikes. had one year, year year of working, and it was a high income year. Okay. So they were were earning, it was about over $200,000, almost $200,000 in this year. And the, when we built the plan, the plan was take a bunch of money, put it it into the the RSP, like $40,000 or something like that. We gotta put it into the the the RSP and then take it out the proceeding the year afterwards, because again, you're moving income from one year into another year. Mm-hmm. My plan was to

Sierra 5:20

put it

Tre 5:20

it in there December 31st, practically speaking, and take out January 1st. So you're just moving income used to be in that year, now it's in this this year. Yeah. And I got a ton of pushback it. So much so they actually didn't do it. They kinda like stopped replying. I was like, we do this before before the deadline. Didn't do it. I find later, that's why. Because they spoke to a friend or whatever and it it was their friend said that they they shouldn't do it they 'cause 'cause are a scam.

Sierra 5:48

Oh no

Tre 5:48

It was like, unfortunately for that that individual, it cost them. Probably it was that it was like

Sierra 5:55

$12,000 or something

Tre 5:57

like that is what it is. What that, that cost them. Right. Because they didn't understand how it worked. And people out there that say crazy things that they don't actually know what they're talking about.

Sierra 6:06

But But again, it's the whole like trusting your friend over any 'cause it's it's like, yeah, they may have good intentions, but they're not right all the time.

Tre 6:13

That's what kind of led me to, to think about it a bit more. I know I'd, I'd heard it before but it's but it's been a very, very long time since someone, someone said

Sierra 6:21

somebody said

Tre 6:21

someone, someone said that, somebody really said that to me or, or impacted me any way. Because normally the people that would be saying that, not really the people that I'd be working with, for the most part. It is a very low level of of financial literacy. So I wanted to talk what it does, what RSPs do, and The withdrawal process of them. Mm-hmm. Because you have you have understand the withdrawal side of it in order to understand how you should be using a tool.

Sierra 6:50

Mm-hmm.

Tre 6:51

So the withdrawal side of it is, is very simple. It's a tax planning game.

Sierra 6:56

When it comes to

Tre 6:56

to RSPs, as I said, you're moving income from year into another, so

Sierra 7:00

contribute to

Tre 7:01

RSPs. Take income off that year, and you simply take that income in a year and while it's in that account, you get to defer the taxes on any growth that you, that that money earns. Yeah, it's pretty simple. Just because you don't

Sierra 7:18

spend the money, doesn't mean you don't earn

Tre 7:21

earn the income. That's like me saying, Hey, because hey boss, pay me less. because I don't actually want spend the money this year.

Sierra 7:30

Just

Tre 7:30

keep it,

Sierra 7:31

but you owe me later.

Tre 7:33

Yeah. Just like, who's going do Nobody's realistically gonna do that. They gonna say, gimme the money, I'll take the money and I'll do something else with it. I'll save it, I'll invest it. do something else with it. It doesn't mean it has to be spent. So when you're looking at retirement planning, you to understand that there is two things that you are solving for. You're solving for, the first thing, which is the most important, of course, is that do I have have money to live the life that I want and food table? If markets drop, not have to worry and panic and what's plan gonna be when markets do drop? And all of that stuff. Mm-hmm. you're the the feasibility of their retirement. The second thing is you're looking at is the efficiency of their retirement. By efficiency, mean tax efficiency of their retirement. Which means that very seldom, very, very seldom is the right decision not to take income or have very, very low income in your early retirement years.

Sierra 8:31

That's not the right decision?

Tre 8:32

That's very, almost never is that the right decision.

Sierra 8:36

So you're taking more income in the early years? You

Tre 8:37

should be taking income in those So what sometimes would happen is that somebody, teachers are a prime example this, where they will retire and then will, they'll not work, so they'll get their their pension they built up all all these RSPs. And let's say they retire 55 years old and they've been pretty diligent. They have 350, $400,000 sitting in RSPs, and they choose to not take any of it, right? Maybe some of they don't have anything TFSAs. They don't a a non-registered account. They don't have don't have anything like that, but they don't need the money right now, so they'll delay it.

Sierra 9:12

Well, eventually

Tre 9:13

time pass and

Sierra 9:14

$400,000 will grow. And

Tre 9:16

now at 65 years old, that $400,000 is now $800,000.

Sierra 9:20

Right.

Tre 9:21

And now Their bridge benefit for their pension will drop off. And then they'll start taking Old Age Security and and CPP. Well, here's the thing about taking old age security. It's an income tested benefit, which means that your income, in order to receive it, needs to receive the full amount, needs be below around 95 ish thousand dollars. But at 71 years old, this RSP Is turned into a RIF where you are now forced take money out it. Yeah. Well, now you're in a position where your RSP is now grown. If it was 865, it's it's now at 1.2. Something like that at 70 years old. And you're being forced to withdraw. $60,000 from it every year, and that percentage is going up every single year while on a $1.2 million portfolio, $60,000 isn't even even the interest. So your portfolio is continuing to go up.

Sierra 10:21

It's what? This is such a funny problem to have. I'm not gonna lie. Oh no, I'm getting too much money,

Tre 10:27

Right?

Sierra 10:27

How do I spend all this money

Tre 10:29

And all this time, they still don't have maxed out TFSAs. They still haven't done all of things that you should do. Then their partner passes away. And suddenly they now have double the the pension,

Sierra 10:41

Aye yi yi.

Tre 10:41

and all their partner's money is now also not being paid tax yet.

Sierra 10:45

By the way, if you're out there and you're like, Uh, what what am I doing with all this money? I'm just saying. There's people out there who might want some, and you can find my contact info.

Tre 10:58

If only it was that simple, right?

Sierra 10:59

They're like, I can't give because,

Tre 11:01

because it's stuck in an an RSP.

Sierra 11:03

Yeah.

Tre 11:03

Or RIF or whatever. Oh, that hard. And like it creates this problem because they're, seeing they're seeing it as I might need it later. Instead of, okay, this is money I haven't tax on yet. I need to pay on it as efficiently as possible.

Sierra 11:18

Yeah.

Tre 11:18

So. That's why at 55 years old, if I'm, you're planning this and you and you see this problem happening, you would start to take large amounts this money out. You would start to max out your your TFSAs. You would even start a non-registered account that is very tax efficient. You would do things because you do not want to be stuck in this position where you are Basically forced to forego all these government benefits. Just so you can have low income between 55 and 71. Which is like, is that, guess it's, that's also your spending spending years, right?

Sierra 11:53

Yeah. In retirement, you're gonna be traveling, doing stuff with your family. Yeah.

Tre 11:57

Take spend, like not, and it might not be spend it, right, depending on how much you have, but you should be taking it out to pay tax on it. Especially starting before you have access other government benefits that are, that are are income tested the. Uh. Like the medical plans and the, and those type of things, and the drug coverages and stuff like that. All of that, most of that stuff is is income tested. if I'm gonna, oh

Sierra 12:23

Oh yeah, that's true

Tre 12:24

Yeah. I'm gonna have low income, I would like it to be when I'm older and probably on a bunch of drugs. You know, like that's, the reality of it. It's not gonna be when

Sierra 12:36

Like, you have so much money and you're super sick, so you're gonna pay extra. this is the worst. Right. Or it happens where like, older ones will end up in like care homes. That is again, income

Tre 12:47

probably income tested.

Sierra 12:48

Yeah.

Tre 12:49

And now they're paying significantly more. For what? Right. Just because you didn't want to pay tax? And is not a a case of this is un like how you have have foreseen this? Some of this stuff is really obvious that it's gonna happen. Mm-hmm. Right? To a planner, like put it into any terrible planning software you just come to same conclusion. You could do an Excel, honestly. Do in Excel

Sierra 13:12

You do love Excel.

Tre 13:13

I do love Excel. Do it it in Excel and you're, even then you'd very quickly okay, this is gonna become a problem. So you need to start, you start thinking about it. But the point is that an RSP is that tool. It is a tool used to move income from one year into another. So how do you how do you withdraw from it? You withdraw from it in low income years. Those low income years might even be maternity leaves and things like that. You still have still have the ability to withdraw during those periods of time. In fact, if I was sitting there with no income, I would withdraw money. can take it out within a couple, basically 20 ish percent taxes, that's really low.

Sierra 13:50

I've never heard that before. I'm kind of like. Sorry, my brain's still way back there on the maternity leave thing. I'm like, what?

Tre 13:57

You have low income.

Sierra 13:58

Yeah. I would never have thought about that

Tre 14:01

and like if In Canada we get the benefits, so So

Sierra 14:04

I guess people might not think about that. But what if you're taking an extended maternity leave? 'cause I know some people

Tre 14:09

Yeah, but then it depends on if you're like, 'cause there's, there's more to it. So if you are are you are taking an extended one, it means you're going back to work. So you have the income

Sierra 14:18

but

Tre 14:18

what

Sierra 14:19

what if you're taking an extended one and you're not going back work you don't know when you're going back?

Tre 14:24

well, maybe now are you you talking about yourself now

Sierra 14:27

would do that? There is a, there

Tre 14:29

is a small, I just saying

Sierra 14:29

in there is a small misconception

Tre 14:31

that even with with spouses, you can still take out the minimum.

Sierra 14:36

Like you can still take out

Tre 14:38

your exemption, but with a, in Canada, when you are, you have a spouse, your first like $15,000. If you're not working, it does, get to do it with spouse and everything, so it's not as great as just taking money out free. But you can certainly take it out for cheap.

Sierra 14:55

Yeah,

Tre 14:55

and certainly it out for cheap. I

Sierra 14:56

I feel like, again, this is, it is one of those things where it's like a planning thing and I feel like a lot of people struggle with that, which makes sense because. Everybody uses money. Nobody reads all the rules. I don't. I mean, in general. Yeah. Like obviously you're a specialist, not

Tre 15:12

No, but I but don't how big tax code is? It's

Sierra 15:15

huge. You reference, some of it least. Yeah,

Tre 15:17

Yeah

Sierra 15:18

read the stuff that is important to me. I

Tre 15:19

I went to a tax conference, um, run by a a law firm, like a tax law firm in town, and they were about some of the changes and stuff like that. It's just like Those people, they read all the the rules. I don't read all the rules. first How was the

Sierra 15:34

the conference?

Tre 15:35

It was really interesting. interesting.

Sierra 15:37

I I was gonna.

Tre 15:40

is

Sierra 15:40

awesome. That That That is not what I expected. I was like, what? Those people read all the rules and I'm just expecting like a room full of monotone people.

Tre 15:48

Yeah, they were, They were, they were, they were. they were, they were, um. They were were cracking jokes. It was obviously rehearsed. Yeah. They were rehearsed them significantly, but they were

Sierra 15:56

The jokes? They

Tre 15:56

must have. Yeah. There's no way you can be a tax lawyer and interesting and funny.

Sierra 16:00

It was just, but

Tre 16:02

no way. But, um,

Sierra 16:03

at the the end waiting for the crowd to

Tre 16:05

Yeah, basically.

Sierra 16:05

That's like me. I love, I love making people laugh though. I hope people laugh at me on the podcast. They're

Tre 16:13

Yeah, or sigh or groan.

Sierra 16:14

Yeah. I'm my jokes aren't rehearsed everyone

Tre 16:17

They're like we can tell. um. Yeah. What was I saying now,

Sierra 16:24

Sorry? You went to a tax conference and it was interesting.

Tre 16:26

Oh, yeah, they read all rules I don't. I read the stuff that's relevant to me. A lot of the tax code is about about is about compliance, right? compliance to certain, certain things. Like on the tax planning side, you're mainly looking ahead and optimizing for efficiency.

Sierra 16:43

Mm-hmm.

Tre 16:43

Right? And income efficiency is a little bit different on the corporate side, Which are changes likely coming to the... Oh, maybe we'll we'll discuss them. The eligible dividend.

Sierra 16:54

Ooh, the eligible dividend, everyone. I'm sure everyone's excited, knows a lot.

Tre 17:00

You don't remember the nerd accounts?

Sierra 17:02

Of course. I remember the NERD Yeah.

Tre 17:03

Yeah.

Sierra 17:04

And the R-D-T-O-H. Yeah. Go.

Tre 17:07

Yeah.

Sierra 17:08

Another, another high five for the podcast. My financial literacy has definitely increased.

Tre 17:14

Yeah.

Sierra 17:15

Since having to spend, we should count how many hours I've had to spend talking to you about financial things. See maybe I love it. Maybe I could be a financial planner at that this

Tre 17:25

Yeah, you can you can write the CFP should be, You never know. Should

Sierra 17:28

Should I just try it? Should I just be like, I'm gonna throw my name in there and try to

Tre 17:32

throw it blind? I don't think let you, but

Sierra 17:35

I'd be

Tre 17:35

be interested if you,know how well you did.

Sierra 17:37

I would love to like do a mock to, I obviously I'm not interested in getting like actually certified by any means, but I would love to see how much I know now 'cause I've been mentored for a long time.

Tre 17:48

You'd know more than some people that take it. Anyways

Sierra 17:51

Y yikes um Yeah,

Tre 17:55

That was basically really wanted to cover was just the fact that a, it's Oh, contributing it. Sorry. Contributing to it. How you do it is you determine what your long-term tax bracket is going to be.

Sierra 18:08

Well, that's what I, oh, sorry. That's what we were talking about. I was saying the long-term planning is very difficult for people I find. Even,

Tre 18:15

some of it is even difficult for me to do, and I would say,

Sierra 18:18

Yeah. It's

Tre 18:19

oh,

Sierra 18:20

just simply figure out what your long-term

Tre 18:21

tax gonna Well, that, that part's not the hard part. The hard The hard part is... well, that might be the hard hard part, as well, but You can get a pretty good idea depending on what career you're in. Right? Like, know that a a nurse is gonna make roughly this amount. There's certain, know, there's certain careers that are gonna be, so for nurse is a great example where nurses flirt with the 115 thousand dollars ish tax bracket.

Sierra 18:45

It's not what I

Tre 18:47

around that. Around that point.

Sierra 18:49

Yeah.

Tre 18:49

Yeah. and then when like their taxable so they'll learn more and and then they'll contribute to pensions like that, and they'll bring it down to that ish. So you'd make RSPs around that tax bracket. You'd want your taxable income to always be below that threshold so you'd know, hey, that's the minimum I'm gonna do RSP contribution. I'd do. You'd take money from your non-registered account, TFSA accounts, all of those to make those contributions and get it below that tax bracket threshold. That is how you should approach RSP contributions. Here's the thing. With Canada, there is a lot of benefits are are income tested. So it does complicate it a little bit. So even in the middle of tax bracket, sometimes it can make sense to do on the lower end. So between like $50,000 and $100,000, sometimes it can still make sense do RSP contributions to get things like the, child tax credit. Right. And things like that. There's other plenty of other things that are based on your taxable income. So sometimes you'll do it just to get those, but there's not actually a good tax planning software out there that includes all of the the benefit stuff.

Sierra 20:04

Yeah. Well, probably, probably because they maybe change and stuff to add new benefits.

Tre 20:08

There's that, but the question is why would you need it? So tax planning stuff tends to be focused on the upper end of the tax spectrum.

Sierra 20:17

Yeah,

Tre 20:17

tax filing software is about compliance to the tax codes. You're just filing taxes so that doesn't need it. So it's really, you would need like low income, lower income, financial planning software to do it. That's updated those things there. Yeah.

Sierra 20:36

kind of does suck that the people who, yeah, that people who really need, Like if people were genuinely like in a lower income bracket. And, and could benefit from something like that. And were willing to, you know, like, I'm not saying like they they wanted to work towards knowledge and that kind of stuff, they were motivated to do that.

Tre 20:57

Yeah.

Sierra 20:58

But there's nothing that exists for it. So it's like kind of, that's kind of, sucks for them. Like,

Tre 21:02

Yeah. So if there's like,

Sierra 21:06

Or people on a, well, we were just talking about like people on disability, people on. It's like there, there are benefits and there are things for them that they could be utilizing, but there's no financial planner that they can go to for these things.

Tre 21:20

No. Well, you can go, like you could and, but this is the blurs. So you can go get pro bono help and advice and things like that. Um. At some places, but realistically, you're gonna have to pay somebody for them. And people in that income range tend not want to pay for professional services, right? Mm-hmm. So they're also the most likely people to use Like HR block for their tax filings like stuff like that because you, you of want want the easiest thing possible. And truth be told especially on the lower income side of things, there's very few people that operate in it. Like I, even, for me, I don't, I work with enough people in in that, in that area to know all of the ins and the the outs for,

Sierra 22:09

well, yeah, you can't

Tre 22:10

need and all the

Sierra 22:11

specialize

Tre 22:12

All the benefits that are available to you. Like I I could find it, but think about the time. So if I'm gonna charge somebody for my time,

Sierra 22:21

they

Tre 22:21

really.

Sierra 22:22

Gonna pay

Tre 22:23

me a, like

Sierra 22:24

a thousand,

Tre 22:24

$2,000 to find,

Sierra 22:26

to

Tre 22:26

take the hours it's gonna take for me to go through government

Sierra 22:30

Canada website. Like there are like

Tre 22:31

small calculations and stuff that you can, you can through and there's a list of

Sierra 22:36

a bunch of

Tre 22:37

of the,

Sierra 22:39

the

Tre 22:39

benefits, but they just have new ones. So Canada Grocery and and Essentials, essentials benefit, right? So like

Sierra 22:45

quarterly

Tre 22:46

payments.

Sierra 22:48

How much you could receive and like, but

Tre 22:51

again, it's income tested, so

Sierra 22:53

there's so many that, you know know what they should do though? should should really just like. If somebody is on certain benefits, they should really just have a way to be like, Hey, if you're on these benefits, you're probably gonna also, because you're telling me

Tre 23:12

they they kind So like this one for instance, is like the GST/HST credit.

Sierra 23:17

Okay.

Tre 23:18

Right. So. So. With with one, but it got, it changes every year, right? So with maximum threshold married or individuals with or without children. So in 2024 with two children, $66,000, right? So it might make sense that close to that amount. As a household that you do RSP contributions to get you below that. And then you get this extra, this extra amount,

Sierra 23:49

yeah. of your credit,

Tre 23:50

And it might make up for the the fact that. But that's that's that's fair amount of of planning somebody with a household income of $66,000 with two children to

Sierra 23:59

and and for them to be like, oh, you know what I'm gonna do? I'm gonna contribute to my RSP because I wanna bump income into my another year. Like they're,

Tre 24:07

you know, like, it's it's

Sierra 24:08

just very unlikely. Yeah, exactly. Which is, it's too bad, but

Tre 24:13

it's too bad because these are the type of people that would benefit from that planning the most. Yeah. But. Unfortunately, yeah, there's just very few people out As in, I don't don't know any, I don't know anybody out there that specializes in with individuals in this type of

Sierra 24:28

Well, like

Tre 24:28

Well,

Sierra 24:28

like you said,

Tre 24:29

family income range. 'cause it's not profitable to do like you,

Sierra 24:32

that's the issue

Tre 24:33

Very difficult to build a business out of it. cause they're they're not the people that look for help with it, unfortunately. But,

Sierra 24:39

yeah.

Tre 24:40

Yeah. But anyway,

Sierra 24:41

that's, so RSPs can

Tre 24:43

can be be used for that type of thing as well. Where you, again, just moving income

Sierra 24:49

year into another.

Tre 24:50

So use that tool as you would, there's tons and tons of uses for a tool like that. But one of them, is which the biggest one, is retirement. But you gotta out what the, what drawing it it out looks well. lots lots of that hit retirement and all they they have is RSPs. And it's

Sierra 25:08

okay,

Tre 25:08

well you have an issue that we'll try to fix, but there, there's an issue here. Yeah. Again, but it's

Sierra 25:14

it's, don't, the name of the account is registered retirement savings plan. So people just mindlessly

Tre 25:19

put money in there and that's for, save pretty efficiently without RSP at all. Right. Like don't need use an RSP do it. Lots of people, wouldn't. No, I would say lots of people wouldn't. There's plenty of people out there that don't much in RSPs that retire just fine.

Sierra 25:37

Yeah,

Tre 25:37

Because they have other income sources, et cetera. I still remember A teacher that, one of my first clients, in fact. But I very early stopped RSP contributions I know that that they got comments from like, because they discuss it friends and stuff like that, and I held firm to it. I was like, No, I know what they are telling you. is wrong. It's wrong. We are pick a non-registered account, investing in a a non-registered account over RSPs RSPs because I know what your income is gonna be later on, I know what your pension like. This money, it's much more valuable than just mindlessly putting into RSPs building up a big RSP balance. You don't spend enough for this to be worthwhile. Anyway. For different people, it can make a lot more more sense to, to use them in certain ways than others, right? So we still use them, but definitely nowhere near maxed or what we could potentially put in them. The money isn't necessarily for retirement, right? It was like a building wealth fund and now we're talking about lots other things. Building cabins and buying cabins and stuff that. Because they paid off their home. And guess what? We have the money to do it, right? And do it tax efficiently if we wanted to use debt. Right? There's so much potential.

Sierra 26:57

Yeah. Yeah.

Tre 26:58

of the way way that we built it versus mindlessly putting into RSPs and

Sierra 27:02

And having those like mental, again, same about like how I do it. Where it's like this money is for this. Yeah. Instead of like, here's all the money and I can like. really, yeah. I've really struggled with that and I've really tried to work on it over the years, but I still notice, I'm like, I have this $100 bill and that is for this can't use another bill. It's gonna be this bill. This, this

Tre 27:27

another bill.

Sierra 27:27

is bill. Why?

Tre 27:28

It's exactly how a lot of people think about it.

Sierra 27:30

Why am I wired that way?

Tre 27:31

I dunno. I think

Sierra 27:31

humanity

Tre 27:32

is, in general, I I think it, it takes a little of bit of work get out of that habit, if anything.

Sierra 27:38

Yeah.

Tre 27:38

But

Sierra 27:39

it's like you don't wanna lose track of it or something.

Tre 27:41

But anyway that's, yeah. So that's,

Sierra 27:43

So RSPs are not a scam.

Tre 27:45

No, they are not. It is basic math math. They're not a religion that you have to

Sierra 27:50

Like, I don't believe

Tre 27:51

I don't believe in it. Like, no, it's, RSPs are what they are. It's basic math.

Sierra 27:56

You can disagree with it, I guess, but or not use it. Whatever. But

Tre 28:00

You, yeah, can not use it. But for it to be scam is, low financial literacy. It's just, it has to be used appropriately. Yeah. And as you said, if you were smacking a nail with a you say that this is a scam mallet, but it's like.

Sierra 28:14

Yeah, this, this mallet isn't,

Tre 28:16

This is a garbage tool.

Sierra 28:17

Broke my wall.

Tre 28:18

Yeah, it's, well, how this, well, he was using it wrong. That's broke your wall. Very good at what what it's, designed for.

Sierra 28:25

What is the mallet for? I just said that 'cause I know it's a big hammer.

Tre 28:28

It's, I think it's to, they use it in like woodworking to... I just have this picture in my mind somebody building a, like a staircase and and having to a mallet on piece of wood where they want to damage the wood. Which is why it's rubber.

Sierra 28:45

Yeah. 'cause it's to like maybe move things.

Tre 28:46

Yeah. To

Sierra 28:47

whole

Tre 28:47

whole piece of wood into this area. So think like designed to, so doesn't cause damage on like.

Sierra 28:54

That makes sense. Like if you're fitting pieces together, it's like this has to be super tight.

Tre 29:00

Yeah.

Sierra 29:01

So I need like pressure to push it together, but I don't wanna

Tre 29:04

You don't don't wanna like a nail hammer that's gonna

Sierra 29:06

dent

Tre 29:07

huge dent in the wood or something like that.

Sierra 29:09

See, wrong tool.

Tre 29:10

Right? But the mallet is great for certain things. Right, man. Just like with RSPs, they're just, it's just a tool. It's just a tool.

Sierra 29:18

Yeah. It's

Tre 29:18

how we use it. That's what matters. So if you're in a position where you're like, this is a scam. It's probably You. It's probably you

Sierra 29:29

go read the rule book.

Tre 29:30

Yeah. I mean, it still,

Sierra 29:31

Go read the user manual. That's what it should be. User manual for your mallet.

Tre 29:36

Yeah. I think part of this issue is caused by not enough people that know call, not out, but like correcting them. Because even, even as an advisor sometimes it could, I could definitely see where it's easier to just go with what client client wants to do.

Sierra 29:50

Yeah. It's uncomfortable to be like, you're wrong.

Tre 29:52

Yeah, absolutely.

Sierra 29:53

People don't like that. Or to,

Tre 29:54

to say to somebody, no, we. Could avoid taxes this year. 'cause I've Done that with clients even this past tax year, whereas, so we, we could, but yeah, of course we could put money into RSPs here, but when are we gonna take it it out? Right. Let's look at your timeline. Ain't no no for take this out without you you paying more taxes on it.

Sierra 30:14

Mm-hmm.

Tre 30:15

So gonna pick taxes this year, right? Like it's,

Sierra 30:18

yeah.

Tre 30:18

You have the ability to, it's not gonna, like, you'll just, earned a a bunch of side gig money, right? Like it's. You gotta pay some tax on it. We'll pay only this much taxes. We'll put RSPs in to bring your taxable down to here, but you gonna taxes. When we could say, okay, well we'll just pay an extra $40,000 and not pay any taxes. like. You're gonna have to pay the tax sometime.

Sierra 30:43

Yeah. Yeah. People, I think people hope you just will never have pay the tax.

Tre 30:46

That's not way it works.

Sierra 30:46

Maybe the tax code will change in 20 years and then I won't pay the tax.

Tre 30:50

There's only one way way that I think the tax code is gonna go that's pay more taxes.

Sierra 30:54

Yeah, so pay while it's cheap now Pay

Tre 30:57

while its it's cheap. Absolute, absolutely. Yeah. But even when somebody away, right, Because all of that income is that one year. year So if you have, know, $500,000 sitting in your, in your RIF when when pass away and you have nobody to roll that over to, that's $500,000 of income in that year. That's a bill that you you are paying. you are paying.

Sierra 31:18

yeah.

Tre 31:18

Well, I'm glad you uh, got to put it in there at 30% and uh, now you're 49. It's,

Sierra 31:26

doesn't make make sense.

Tre 31:27

Doesn't make sense. Yeah, it doesn't make It's a tool. Use a a tool appropriately. But anyway, that's where we'll leave it for that one.

Sierra 31:33

Perfect.

Tre 31:34

See you in the next one.

Sierra 31:36

Bye.

Tre 31:36

Bye. Thanks for listening to this episode of the Plain English Finance Podcast. Tre Bynoe, Certified Financial Planner, Chartered Investment Manager is a financial planner with TCU Wealth Management and Aviso wealth. You should always consult with your financial, legal, and tax advisors before making changes. This podcast is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell at any securities. The views expressed are those of the individual and are not necessarily those of Aviso Financial Inc. Mutual funds and other securities offered through Aviso wealth, a division of Aviso Financial, Inc.