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Canadian Investing / Canada - RRSP Strat / Taxation

URL:  http://boards.fool.com/rrsp-results-14220324.aspx

Subject:  RRSP Results Date:  1/29/2001  10:30 AM
Author:  palsan Number:  856 of 1193

ASSUMPTIONS
1. RRSP Investment: $5,000 invested at beginning of year at age 35 and employer adjusts source deductions (ie the full 5000 is invested up front and there is no refund the following April).
2. Non-RRSP Investment is done with after-tax dollars: $5,000*(1-marginal tax rate)
3. Retire at age 65 and withdraw all funds over a 10 year period - withdrawls indexed to inflation so that the withdrawl the second year is 3% greater than in year one.
4. Rate of return on RRSP assets: 10%
5. Capital Gains inclusion rate: 50%
6. Inflation rate: 3%
7. All gains outside RRSP are assumed to come in the form of capital gains.

Marginal Tax Rate while working 25% 25% 35% 35% 35% 45% 45% 45%
Marginal Tax Rate at retirement 25% 35% 25% 35% 45% 25% 35% 45%

Rate of return on RRSP assets 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%

Rate of return required to achieve the same retirement after-tax cash flow inside and outside RRSP
Absolute Buy & Hold 10.6% 10.4% 11.1% 10.9% 10.6% 11.6% 11.4% 11.1%
All gains taxed when earned 11.4% 11.0% 12.6% 12.1% 11.6% 14.0% 13.5% 12.9%

Notes:
The "absolute buy and hold" means that once a stock is bought it is not sold until ret