Book Review: RRSP’s

If you follow any of the other Canadian personal finance blogs around, you would have read about the new and upcoming book written by Preet Banerjee called "RRSP's". 

For non-Canadian readers, RRSP stands for "Registered Retirement Savings Plan" which is basically an investment account for Canadians that allow investments within it to grow tax free (along with other perks).

Ok, lets get down to the book review. 

Who is Preet Banerjee? 

Some of you reading this will know Preet Banerjee as the blogger behind "WhereDoesAllMyMoneyGo".  What most people don't know is that Preet is a former amateur race car driver and a full time financial planner for high net worth clients.  What I think separates Preet from other financial advisors is that he's willing to give away sound financial strategies that don't benefit him directly. For example, there is a section in the book that shows that paying off the mortgage first can have benefits over contributing to an RRSP at the same time.

What is this book about?

This book starts off with explaining the basics of RRSP's and how to calculate your tax return based on your RRSP contribution.  From there, it moves onto 41 RRSP based strategies from basic to more complex. 

Even though i've done quite a bit of research on RRSP's, I have learned a few things from this book, especially with the detailed scenario comparisons.

What I liked about the book?

My favorite parts of the book where the chapters that involved scenario calculations.  In particular, the detailed numerical comparisons between:

  • Mortgage vs. RRSP and various combinations.
  • RRSP vs. Non-registered portfolio
  • RRSP Meltdown effectiveness and associated calculations
  • Traditional RRSP vs. Straight Leverage vs. Preet Principle

What did I learn the most from this book? 

I knew this before, but never really put into context HOW important it is. Always, ALWAYS use your RRSP tax refund efficiently.  Whether it's paying down debt, re-contributing to your RRSP, or putting it in a non-registered account, the overall benefit of the RRSP depends on it.

What needs improvement?

There is nothing in particular that I didn't like.  One little note though, at the beginning, it explains how to calculate your RRSP tax refund based on your salary and total taxes paid in.  Another way to calculate your tax refund is to  simply multiply your marginal tax rate by your total contributions.  For example, if you contributed $5,000 and you're in the 40% tax bracket, you should get back approximately $5,000 x 0.40 = $2000. 

Final Thoughts:

  • I highly recommend this book for all Canadians who want to understand RRSP's in depth.  It's a book that is easy to read for both the beginner and more advanced.

Stay tuned for tomorrows post.  Preet has been generous in offering MDJ a few copies to give away.

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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Book Giveaway #4: RRSPs by Yours Truly : WhereDoesAllMyMoneyGo.com
12 years ago

[…] Million Dollar Journey […]

George
13 years ago

Rachel: That’s a question you should direct to the issuer of the GIC (i.e. your bank). What happens to the GIC upon maturity is not relevant to whether the GIC is held within an RRSP or not.

Rachel
13 years ago

I’m new to RRSPs, Kevin, but I understand your calculations. :)

I have a question for you. You calculated an RRSP with a constant rate of 4%. What if I start a 5-year RRSP (GIC), with an increasing rate each year, and after the 5 years I want to keep the money in the RRSP. Does the rate stay at the highest (ie. year 5), or does it drop back to year 1?

Best of Million Dollar Journey: Feb 2008 | Million Dollar Journey
13 years ago

[…] Top Commentator AND Winner of a copy of RRSP's: […]

Kevin
13 years ago

I would just like to give an example of how well an RRSP will work as far as your return on investment within only a couple of years. This example is based on a 40% tax bracket and purchasing $10,000 per year based on a 4% annual return and re-investing your tax refund into the next years RRSP contribution. I know ING offers at least a 4% annual return at this time

Yr 1 money contributed-$10,000 refund bonus-$4000.00
Yr 2 contribution -$10,000 refund bonus-$4000.00
Yr 3 contribution -$10,000 refund bonus-4000.00 Yr 4 re-investment of last bonus-$4000

Now if you notice it appears that you have invested $34,000 into your RRSP but if you consider that you have re-invested all of your bonus income from your tax return in essence your out of pocket investment is as follows

year 1 $10,000
Year 2 $6,000 (+ $4000.00 Refund)
Year 3 $6,000 (+ $4000.00 Refund)
Year 4 $0 (+ $4000.00 Refund)
Total out of pocket Contribution $22,000

(total actual Contribution $34,000)

Now, by the end of year 5 after only contributing $22,000 dollars out of your out of pocket cash and compounding 4% annual interest on your RRSP investment, you now have an RRSP valued at $37923.23

This means after 5 yrs, you are ahead $15,923.23 but obviously you do not need to take out the RRSP, just let it grow and compund interest now and you will begin making 1,516.92 per year (based on 4% annual)and rising without contributing any more.

Now I know when you take out the RRSP you will be taxed, but if you decide to take it out before you retire and you take it out on a low income year than you will pay less tax than you ultimately saved on your refunds.

If there is anyone out ther to correct my math, or my positivity on using RRSP’s to the fullest please let me know.

Otherwise, I hope this math and example helps out a few people in making a choice in where to invest your money.

Book Giveaway Winners of the Book RRSP’s | Million Dollar Journey
13 years ago

[…] amAdd comment Permalink It's time to announce the 4 book giveaway winners of the new book: RRSP's written by Preet Banerjee.  Out of the 105 entries, the 4 winners  are summarized […]

Four Pillars
13 years ago

Acorn – he does talk about meltdown strategies including using leveraged investments to offset the tax burden.

From what I recall he doesn’t really advocate them because you have to borrow a lot of money to make it work which isn’t all that realistic for most people who are near or at retirement age.

Mike

Acorn
13 years ago

I’m just wondering what this book says about RRSP Meltdown effectiveness.
Can we combine RRSP meltdown with SM somehow?

George
13 years ago

Ann: If you are on a “low income pension”, why are you even thinking about making an RRSP contribution? If you’re now retired and drawing income from a pension, it probably makes sense to think about withdrawing funds from the RRSP instead of putting more money in – retirement income is, after all, the very purpose of an RRSP. But, that’s just my thought – take it for what it’s worth.

If you need specific advice tailored to your situation, though, it’d be a better idea to talk to a professional rather than a bunch of people posting comments on a blog. You’ll get a far better, more personalized response that way.