Investing Plan 2014

Retirement savings has taken a bit of a back seat this year due to the fact that I'm in the middle of my Masters and my income has dropped. None-the-less I had a nice little sum $6,443.96 that I had saved up in the previous year sitting in my savings account ear marked for retirement.

My knee jerk reaction was to dump it into my RRSP (which has a whole bunch of room in it now that I no longer have a pension) and celebrate my tax return. But, after some wise words from my father, I got out a tax calculator and ran the numbers. (By the way I often use this one.)

As summarized in the table below, if I wait until 2015 when my income will return to $70,000 I'll be in the 31% tax bracket and will see a tax return of $3,426.50. On the other hand if I contribute this year with a $42,000 income I'll be in the 24% tax bracket and I'll see a return of $2,656.50. In other words, waiting a year to fill up my RRSP I'll see an extra $770 on my tax return.

Taxable income	$70,000.00	$42,000.00
Taxes paid	$14,924.00	$6,339.00
Marginal Tax Rate	31.15%	24.15%
RRSP contribution	$11,000.00	$11,000.00
Tax Return	$3,426.50	$2,656.50

In the mean time my $6,443.96 of retirement savings have been moved to my TFSA and invested. The breakdown is as follows - 55% in a Canadian Stock Index, 15% in a US Stock Index, and 30% in an International Stock Index. (The International Stock Index doesn't include US companies.) I've left bonds out of the equation this go around because my TFSA also holds the money I've saved for a car, which is invested in a Canadian Bond Index and the money I've saved to make extra payments against my mortgage which is sitting in a high interest savings account. As a result the total risk for my TFSA is only moderate.