This is a good tax deferral plan but the key word here is deferred!! Taxes are not avoided, just delayed.
So if you end up with a pot of $400,000, that money is not yours; you haven't paid tax on the capital or any gain. So no matter how you withdraw your fund in a RRIF or annuity, the tax man is waiting at the bank for you! All your withdrawals are fully taxable, so you must calculate your income on after-tax dollars.
Again here you pay tax on each cheque at a time when you probably need more, not less, income.
Pension Plans from employers are becoming extinct. Whatever type of pension plan is offered, it is being offered less frequently. Competition from other countries and employee mobility have added considerably to the cost. Long term employment, which a pension plan was supposed to reward, is becoming passe.
This is where the rubber meets the road. You have saved taxes all your working life and now is the time to ernjoy them. Then you realize that the $1000 a month income is fully taxable and won't yield the after-tax income you need.
Now you wish you had paid taxes upfront and invested in land or a duplex or whatever. Or since 2009, you could have put your money into a TFSA so at least part of your income would really be tax free. And that's the choice you have to make, a tax deferred RRSP or a tax free TFSA.
Some things are just obvious. If you can get tax free growth each year, say for 30 years, you can end up with a lot of money; a lot of money and this money will guarantee you a lot of income for your old age.
For example if you start today with $40, 000 and invest $400 a month at 4% for 30 years, you will have $398,000+/-. And that extra $358,000 you made is yours with no tax payable.
So if you are 30 and can retire at 60, this is a simple plan for you. Or vary this plan with your age and monthly investment.
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