As par of my vacation I’m getting caught up on some reading and I came across a great little book. How to Retire Happy, Wild and Free by Ernie J. Zelinski is a must read, but not for the usual reasons.
Typically I read books for investment advice, spending reductions and taxation. This one is different in the regards it focuses on that old question of “What are you going to do with all that time in retirement?” Ernie actually gives a great read on how to plan your leisure time to ensure you have a rewarding retirement.
It a pleasure to read a book that addresses the idea of how to have satisfying leisure time. I think most people spend far too much leisure time at passive activities such as watching TV. One example in the book is if you reduce your TV time by just one hour a day you will gain about 365 hours a year or about 20 extra days a year (based on a 18 hour day awake time) to do something more meaningful, such as reading or another hobby.
So next time you think you don’t have time for anything. Try to just find one hour a day and see what happens. (Yes, I know that an hour can seem like an impossible goal some days, but try for just 15 minutes and you still gain an extra 5 days a year on something.)
Well everyone I’m officially on vacation from 3pm today until Jan 3rd. I will not be posting on Christmas and Boxing Day, but I will try to post after that as often as possible. Happy Holidays and have a great long weekend.
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I recent read the book, The Millionaire Next Door by: Thomas Stanley and William Danko, and I was a bit amazed by some of their findings. For example that fact that 80% of the millionaires in the US are first generation to their money was a bit of a wake up call. There are basically two types of a rich in the book: those that look rich (but actually have little assets) and those who don’t look rich (but have tons of assets).
If nothing else this book teachings you not to worry about what others think and just do your own thing when it comes to money. Just because you earn enough to have the big house in the best neighbourhood and two cars, doesn’t mean you have to spend it that way. I’ve always liked buying the worst house on the block in a decent neighbourhood and making sure I have a profit when I need/want to sell.
It also hammers home the idea that you are not what you drive. You have guys in the US who have a net worth of $10 million, but drive an old truck, because he likes to toss dead fish in the back seat after a trip to his best fishing spot.
So if your looking for some reading material over the holidays, I would suggest reading this book.
Well after thinking about it for a few days I think I have worked out my plan to not invest an additional funds in my wife’s RRSP other than my current $100/month.
It comes down to taxes.
Situation #1 – In the RRSP (Spousal)
Let’s say I put in $1000/year additional to my wife’s RRSP. That would generate a $350 refund on my taxes which I would roll over to the RRSP. So I keep doing that I would average $112/month at 5% for 15 years I would get about $32,050. I would get tax free growth until I hit 45 but then we would start paying tax on all the gains and the original investment to the tune of about 26%, or about $8333 of that. So her nest egg after tax would be $23,717.
Situation #2 – Outside the RRSP in my spouses investment account.
In this case the wife invests $1000 in a Canadian Blue Chip stock. Dividends would be taxed at a -5% rate, so better than tax free growth and then once she sells she would only pay capital gains at a rate of about 13%. So we kept putting in $1000/year or $83/month and she got dividends to a tune of 1% for a 6% rate of return she would have $26,592 in 15 years. Now tax in this case is only on the capital gain, so drop off $15,000 for monthly investment to $11,592. Then drop the reinvest dividends for another $115 to $11,477 at a 13% tax rate, she would owe $1492. So the nest egg after tax would be $25,099.
So outside the RRSP beats inside by $1382 and I did not include any bonus for getting that -5% tax on the dividends outside the RRSP.
I should point out those numbers were made with a lot of assumptions (like all numbers are in current dollars, that the wife doesn’t sell the stock early and trigger a capital gain, and that any RRSP withdrawals would be fully taxed), but with numbers like these you have to make some assumptions otherwise you can’t come up with anything. I still feel that having an RRSP is a great idea for those investments which are tax equal to income like interest or holding non- Canadian stocks.