In Praise Of TFSA's

[Anonymous]

TFSA's are one of the best policies this federal government has introduced. It is very Asian style in the way it encourages savings. Millions of Canadians have taken advantage of it and as younger generations age they too will see it is an excellent option for their own retirement.



Fuck the Broadbent Institute.

Canada's Finance Minister Joe Oliver got himself into trouble earlier this week, and nearly derailed an otherwise excellent news week for the Conservative government.



After tabling Canada's first balanced budget since 2007, Oliver was interviewed by the CBC's Amanda Lang about the government's plan to nearly double the annual amount Canadians can contribute to their Tax-Free Saving Accounts.



When asked about the hypothetical long-term revenue shortfalls that some have attributed to the Tax-Free Savings Account, Oliver said it was a problem for "Stephen Harper's granddaughter to worry about."



Joe Oliver was wrong to say that we can pass our problems to our grandchildren.



It's a gaffe that boils the blood of young Canadians, many of whom are already ringing the alarm bell about high government debt levels that will be passed along to future generations of taxpayers to deal with.



There are many problems that Stephen Harper and, in fact, all of our children and grandchildren have to worry about.



These future taxpayers will have to fret about future debt or unfunded liabilities. For instance, they will be left to deal with the unaffordable Old Age Security program – a program that comprises nearly 20% of all federal spending – and how the pay-as-you-go scheme will almost certainly be phased out by the time today's young people retire.



They have to worry about Canada Pension Plan, and how it's an incredibly bad deal for young workers. Thanks to Jean Chretien's CPP contribution hikes in the 1990s, anyone born in the 1980s or later will only ever qualify to receive about 66% of the value of their contributions based on current projections.



Young Canadians have to worry about the $1.2 trillion in combined federal and provincial debt, much of which has been racked up in the last few years as politicians and bureaucrats painfully regurgitate myths about the need for government debt to somehow stimulate growth in the economy during a recession.



Young Canadians will have to repay that debt. With interest.



In fact, our own personal savings accounts are about the only thing young Canadians can really rely on.



When Stephen Harper introduced the Tax-Free Saving Accounts in 2008, he allowed Canadians to save and invest their own after-tax money into an account protected from future taxation. TFSAs allow Canadians to save and invest without worrying about the federal government clawing back even more taxes down the road.



Economists are constantly expressing concern about whether the CPP will be a viable retirement option for young Canadians, so what better policy than encouraging Canadians to save money for their own future?



These big government types are not worried about our private savings accounts. They are worried that if Canadians can protect their savings from future taxation, there will be less money for big government coffers. They believe that by allowing Canadians to shield their after-tax savings from future taxation, future governments will lose tens of billions of dollars that could otherwise be taxed.



But a tax cut is not a government expenditure. Plain and simple. Allowing Canadians to keep more of their own money is not the same as the government spending money.



In order to believe the mystifying comparison, you'd have to believe that all the money that Canadians make by working hard belongs to the government. Tax cuts are then like an allowance given to us by a benevolent parent.



But that's not how the world works.



The money you earn is yours. You must pay taxes – in Canada we pay about 45% of our income to various levels of government – in order to fund social programs and infrastructure.



Joe Oliver was right to say that future generations will have to fix many of the problems created today.



Today's governments have saddled our children and grandchildren with a mountain of debt and an unsustainable level of government spending. It will be incredibly difficult for young and future Canadians to manage their way out of this mess.



They will have a lot to worry about.



And because young Canadians cannot necessarily trust that today's government pension schemes and retirement benefits will be available to them when they retire, they need to be able to save for themselves. Tax-Free Savings Accounts are a progressive and transparent way for young people to ensure their retirement needs will be met. It allows them to be self-sufficient instead of relying on government.



We should be thankful for lower taxes and more private saving options.

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[Anonymous]

We have tax free savings accounts..



I encourage everyone to pay themselves first and open an account if you do not have one already.

[Romero]

And because young Canadians cannot necessarily trust that today's government pension schemes and retirement benefits will be available to them when they retire, they need to be able to save for themselves. Tax-Free Savings Accounts are a progressive and transparent way for young people to ensure their retirement needs will be met. It allows them to be self-sufficient instead of relying on government.

Most Canadians especially young Canadians don't have the money to throw into a TFSA. Canadians owe too much debt.



Government pensions aren't "schemes". They work and have ensured that working Canadians can get some well-deserved retirement benefits.

[Anonymous]

Most Canadians especially young Canadians don't have the money to throw into a TFSA. Canadians owe too much debt.

Stats show Canadians aged 18 to 24 were more likely to say they plan to use their TFSA savings for a major purchase or for emergencies, while those between 45 and 54 years of age say they plan to use their account for retirement. The older they get the more likely they will be to take advantage of them.

Government pensions aren't "schemes". They work and have ensured that working Canadians can get some well-deserved retirement benefits

We have had this discussion before. Government pensions were possible when there were 10 workers for every retiree and that retiree did not live as long and collect as long. The opposite is true today with fewer workers and more retirees living longer than ever. Such a program is not sustainable and any rational person knows that, hence TFSA's.



Besides, the pittance you get from CPP/OAS is not enough to live on. People must save for their own retirements and TFSA's provide tax relief for that.



You're getting older Romero, you better start putting money aside for your own retirement ASAP. I do it, my Mommy does it, so can you. If it means fewer trips to the pub or hockey games, make the right choice for your own future. If you are counting on something that is meant to be supplemental being your only income when demographics are working against you, you WILL be in for a an unpleasant shock.

[Romero]

We have had this discussion before. Government pensions were possible when there were 10 workers for every retiree and that retiree did not live as long and collect as long. The opposite is true today with fewer workers and more retirees living longer than ever. Such a program is not sustainable and any rational person knows that, hence TFSA's.

You're always claiming the same about every government plan and benefit, but there's never any evidence they're unsustainable.



TFSA's are an option, but most Canadians will be relying on government pensions and benefits just as they always have. They've been sustainable and helpful for decades.

[reel]

TFSAs are the best option for me.   RRPS are a tax bomb.  I only contribute to them for the employer matching aspect.  I'm pretty happy about the TFSA limit being increased.

[Bricktop]

What's a TFSA?

[Romero]

It's a Tax-Free Saving Account. You have to go all the way down to the second sentence of the article to find out for yourself.

[Bricktop]

Yeah, and I could read the last page of War and Peace and know what its about, too.



Tolstoy, however, didn't write in acronyms.



Our system is we pay 9% of salary into Superannuation, before tax. I guess that's the same thing. You can increase it if you wish.

[reel]

The system you are describing is similar to an RRSP (Registered Retirement Savings Plan).  It's a tax deferral scheme.  You pay no taxes on what you put in now, but you pay taxes when you take it out after retirement.  



The TFSA is a different thing.  It's the best thing that the Government of Canada has done for young, intelligent people in the past decade.  TFSAs are a tax avoidance scheme.  You put after tax money in, but you pay no tax on capital gains when you take it out.



The difference is substantial.  I'll give an example.  Assume you invest long term, high risk, high return (averaged over time) in either an RRSP or a TFSA.  Return averages to 7% per year, marginal tax rate is 40%.  You invest $30k at 35 and take it out at 65.  



With the RRSP, you save $12,000 on taxes, so let's assume you also invest that, thus $42,000.  At the end you have $319,714, but you have to pay taxes on it.  This more or less reduces your return to $191,828 (depending on duration you take to withdraw it and other income, but it's good enough for this example).



With the TFSA, you invest the $30,000 and save nothing on taxes initially.  At the end of the term, you have $228,367, but you pay no taxes on it.  So the TFSA has earned you $36,538 more than the RRSP; more than you originally invested.  Good deal!!



This is a simplistic analysis, and the key assumption is that you are still paying 40% marginal tax rate after retirement.  This depends on your income level.  If your income is high, you save a lot, and you are intelligent enough to do so, you will favour TFSAs over RRSPs.  If your income is low or you aren't saving much for retirement, RRSPs are the better choice.  Most people will benefit from a blend.

[reel]

I say that RRSPs are a tax bomb for me because I will likely have a significantly higher income after I retire than I do now.  That means that I'll be paying a higher marginal tax rate then than I do now, so tax deferral is actually bad for me unless the rate of return on the RRSP investment is very high.  It's still better than nothing, but is much worse than the TFSA.  Thus I max my TFSA and put whatever is left over into RRSPs.



TFSAs are also a way of mitigating risk.  Even if you'll have roughly the same income after retirement as you do at 35, chances are that the government will have raised taxes in the interim and you are once again being punished by a deferral scheme.



It sounds a little complicated, but it's not really.  That said, most people have no clue what they are doing.  They assume that because TFSA has the word "savings" in it and the nice lady at the bank told them to put it in a savings account, that's what they should do, and they are actually losing money to inflation.  Complete waste.  They should be putting it in the highest rate of return investment they can get without gambling.

[Bricktop]

Well, we usually follow you guys...so I'd say it will be available here in some form or another soon.



Sounds like a good scheme.

[Anonymous]

TFSAs are the best option for me.   RRPS are a tax bomb.  I only contribute to them for the employer matching aspect.  I'm pretty happy about the TFSA limit being increased.

My husband does that too reel..



We are happy too the TFSA limit has been increased..



We want an adequate retirement, so that means we must force ourselves to save..



Canada Pension Plan is not nearly enough to live on and I expect it to be even less in the future.

[Anonymous]

We have had this discussion before. Government pensions were possible when there were 10 workers for every retiree and that retiree did not live as long and collect as long. The opposite is true today with fewer workers and more retirees living longer than ever. Such a program is not sustainable and any rational person knows that, hence TFSA's.

You're always claiming the same about every government plan and benefit, but there's never any evidence they're unsustainable.



TFSA's are an option, but most Canadians will be relying on government pensions and benefits just as they always have. They've been sustainable and helpful for decades.

The problem with OAS is that it is clawed back at $68,000 and workers like my husband who earn over $108, 000 are ineligible..



The average monthly amount for new retirement pension (taken at age 65) was $596.66 and the maximum amount in 2013 is $1,012,50..



This is not very much which is why we take advantage of TFSA's

[Anonymous]

I advise my clients to take full advantage of this tax free opportunity to save.