I had The Wealthy Barberbook on my desk last night for a research project. After it was done, curiosity got the better of me and I ended up re-reading the RRSP chapter, some 20 years after it was published. My, how things change.
The chapter begins with a recommendation from Roy, the barber, to put enough money into RRSP mutual funds to replace 100% of income in retirement. That is on top of Roys advice to pay yourself first by transfering10 per cent of your paycheque into mutual funds.
Roy says the RRSP contributions will be largely financed without additional savings thanks to the tax refunds and buying term insurance instead of cash-value insurance.
An early start is a must, says Roy, due to the magic of compound interest; he gives the example of two 22-year-olds earning 12% on their money, the first contributes $2,000 annually for the first 7 years and the second contributes the same amount for the next 37 years they both end up with $1,200,000 at age of 65.
Roy urges Dave to forget about RRIFs because he is 25 years away from needing to learn about them. And by then the government will have changed the rules dozens of times.
Roy says ignore the advisers recommending GICs (paying 9%) for RRSPs; mutual funds dont enjoy the same tax savings in an RRSP but they beat GICs over the long run when they average 15% a year like his have.
The only time it makes sense not to contribute to an RRSP is when you have a business to finance or you dont need retirement funds as would be the case if you are expecting an inheritance.
In 1991, the RRSP contribution limit was the lesser of $11,500 or 18% of 1990 income. You were allowed to hold only 10% in foreign investments. The pension-adjustment calculation and carry-forward provision had just been introduced.
Would you say much of the advice, whether by design or accident, seems to dovetail with building book for financial planners?Too cynical?