Posted by Canadian Dream on December 28, 2009
Another day and another interesting question from a reader. This one comes from Andy Royer who wrote:
One question I hope you haven’t answered yet. You (and several others) keep
mentioning it’s not worth it to invest in RRSPs if you will be in the same tax
bracket or higher.
“Now in this income level you will most likely want to avoid RRSP’s as you
likely to be in the same tax bracket in retirement.” — Your March 27, 2007 blog
posting for example.
Has anyone ever done the math on this? I’m thinking the Tax Credit gives you
more money to invest now, plus the money grows tax free into retirement. So even
though you may pay more tax later are you really worse off?
My personal plan is to have 100% of my income when I retire, so this is quite
relevant to me. If you don’t have the numbers I may have to sit down and figure
this out when I get some time.
Damn I hate when I write things that come back to haunt me, but Andy brings up a good point that I shouldn’t be using a blanket statement. In that post I was referring to the fact you need to be careful about assuming a RRSP is a good thing. In some cases it isn’t, it depends on the numbers. For example, a TFSA might make more sense when you are just starting out in investing than an RRSP, since it is more flexible to be used for saving for a house down payment or retirement.
In that specific case I was referring to the fact that depending on the type of investment you make it might make more sense to hold something in a taxable account rather than an RRSP. For example, a Canadian dividend paying stock if your marginal tax rate on dividends are negative. This happens for my wife, she gets a tax credit that is greater than the tax owning so hence the negative tax rate. When that happens you are hard pressed to make up that advantage. If you don’t believe me check out my math here (I just assumed a zero tax rate on the dividends to try and make the results closer. Also anyone is free to copy the sheet and play around. Please advise me if you find a formula error). If on the other hand you were taking about interest income you likely would be correct, an RRSP would likely be better.
So really the answer should be: it depends. Check out the math for your specific case and see what makes sense to you. Hope that helps more than it confuses people.
Posted by Canadian Dream on December 25, 2009
Merry Christmas to everyone! I hope you enjoy your day regardless of what you are doing with it. Just one piece of advice: stop reading PF blogs at Christmas you have better things to be doing today. *grin*
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Filed Under: Admin
Posted by Canadian Dream on December 24, 2009
For anyone who ever wonders what my wife thinks of her job of running a daycare, here is the answer as I proudly present another guest post from my wife. -Tim
Working from home presents its own unique challenges, so here are my pros and cons for working from home as they specifically relate to providing child care in your own home.
Pros
- No commute: This is worth my son’s weight in gold as I don’t have to haul the boys somewhere every morning and is very nice in the wintertime living in Saskatchewan.
- No dress clothes required: I have some nicer clothes for occasions that call for dressing up, but generally all my clothes are of the comfortable and casual variety. This was really great when I was pregnant with our second son as maternity clothes and work clothes period are quite pricey as any woman who needs to dress up for her job can tell you.
- No other work costs: I don’t eat out for lunch or grab coffee/breakfast on the way to work.
- I get to be at home with our sons: This was one of the reasons I decided to become a child care provider, Tim and I love the fact that I can be at home with our boys. We also don’t have to pay childcare costs.
- I can easily stay in shape: Ever run around with a couple kids on the playground? Or spend an hour building towers with Lego trying to keep the kids from eating the Lego and the tower up right? ‘Nuff said.
Cons
- No co-workers: The people you work with can often become your friends as you have common starting point. Working from home, I lack this and as such have had a harder time making friends since we moved to Regina (This can also be pro as most people have a story about a co-worker that they couldn’t work with for whatever reason). Sometimes the only adults I talk to during the day are the parents briefly when they drop off and pick up their kids.
- No back-up: If I or one the boys get sick, I throw other people’s days out of whack. And as Tim can tell you, it’s hard to be at home sick when there’s a bunch of kids running around downstairs.
- No benefits: No paid sick days or vacation days. If I don’t work, I don’t get paid. If I want extended health/dental benefits, I need to look into a private run plan like Blue Cross. I also don’t have access to EI (currently), which is a pain for women as that’s where maternity leave benefits come out of. My CPP when I’m eligible to collect it will be very small, even after taking off the years they allow for raising your kids as I pay only on my profits. For example, one year, I paid about $70 into CPP.
- It’s hard to get away from my job: I can’t leave work at the office, the toys are still there when the last kids go home. I still have my sons to deal with and my nieces and nephews at family gatherings, it’s impossible for me to get away from kids (I’ve tried, they just keep finding me, especially my own *grin*).
At the end of the day though, my favourite part of what I do is that I get to make a real difference in children’s lives. This is the greatest reward for me, feel free to barf if you want to, but it’s true. I honestly like my job, I love being able to work with kids, it’s what I’m good at. Yes, there are not so great days, but I have yet to meet someone who likes their job every day. What really matters is that the good days always outweigh the not so good days. And oh, yes, thank-you Tim for all that you have done to make it possible for me to do what I do. (Editor’s Note: No I really didn’t add that line, she did that all by herself. No wonder I love this woman.)
