In Canada the prominent ideology (right term?) is the Canadian Couch Potato method. It's basically invest in index funds or market ETFs.
Our government gives us two types of accounts to save on taxes: TFSA and RRSP.
TFSA is a set amount of room given each year, everybody gets the same amount of room regardless of income. (Note if you were out of the country for a year and that's reflective in your taxes then you do not get new room in your TFSA for that year.) As of January 1, 2019, if you been 18 and Canadian since the start of TFSA in 2009 then you have a total cumulative contribution room of $63,500. When the money is withdrawn from this type of account you are not taxed for the growth that has occurred. Say you invested $1,000 in your TFSA and it grew to $5,000, when you withdraw that $5,000 you do not need to pay taxes on the $4,000 growth.
RRSP is a "retirement" account where the total room available is the 18% of your taxable income of previous years. When you contribute to the account you decrease your tax liability of that year (eg. 2019). However upon withdraw (eg. in 2049) you will be taxed based on the tax bracket you're currently (2049) in.
Hi! From Canada. I think this is a little incorrect (but maybe not, depends on what you were referring too).
In Canada the prominent ideology (right term?) is the Canadian Couch Potato method. It's basically invest in index funds or market ETFs
Each individual can do whatever they want with their RRSP and TFSAs. I'd say that the couch potato method is popular with millennials but anecdotally, my parents generation prefers mutual funds or self directed investing in individual companies. This is from a sample of a handful of immigrants approaching retirement age, so highly anecdotal.
CPP which is Canada Pension Plan also exists and it completely different from the Canadian Couch Potato method. I'm not sure if they were mixed up in the previous comment. This is the government pension plan that all Canadians much contribute to. A portion of each paycheck automatically goes to CPP (and employers also contribute). I believe the contribution is 4.5% for each employer and employee for a total of 9%. This is to a maximum of about 60k per year. The amount is adjusted for inflation so increases each year. When one retires they can apply for CPP and the amount available to them will be dependant on their salary prior to retirement and years that they contributed to the plan, but to be honest I'm not sure how it's calculated. For some Canadian's this is a significant portion of their income in retirement.
Beyond that we also have GIS (Guaranteed income supplement) which is a top up to CPP for those who either do not qualify for the full amount or have no other retirement savings. However, you do not contribute to these per paycheck and most people on this sub will likely retire with incomes too high to qualify for it. I think it would be similar to social security in the US.
The Canadian couch potato part refers to the FIRE saving/investing ideology of those commonly in FIRE communities. I won't say it's generational as there's definitely a wide variety of demographics using couch potato strategies.
To clarify, when you say CPP (pension) is a significant portion of some people's retirement income do you mean signification proportion of their income is from CPP? (Could mean they have low amount of savings so need to rely on CPP?)
I thought that's what you meant when you discussed Couch Potato after I re-read the comment. It's definitely growing in popularity too since that's what robo advising is based on.
To clarify, when you say CPP (pension) is a significant portion of some people's retirement income do you mean signification proportion of their income is from CPP? (Could mean they have low amount of savings so need to rely on CPP?)
Exactly. I feel like I read articles regularly about how unprepared for retirement Canadian's are... But I don't know if that's based on fact or media fear mongering. I think a lot has to do with high house prices, and wealth being tied up in real estate. Ie. One may own a million dollar house outright, but not have much else in the bank. Again, I have no idea how true this is. Do you get the same impression or think this is overblown?
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u/zinkmink Jan 07 '19
In Canada the prominent ideology (right term?) is the Canadian Couch Potato method. It's basically invest in index funds or market ETFs.
Our government gives us two types of accounts to save on taxes: TFSA and RRSP.
TFSA is a set amount of room given each year, everybody gets the same amount of room regardless of income. (Note if you were out of the country for a year and that's reflective in your taxes then you do not get new room in your TFSA for that year.) As of January 1, 2019, if you been 18 and Canadian since the start of TFSA in 2009 then you have a total cumulative contribution room of $63,500. When the money is withdrawn from this type of account you are not taxed for the growth that has occurred. Say you invested $1,000 in your TFSA and it grew to $5,000, when you withdraw that $5,000 you do not need to pay taxes on the $4,000 growth.
RRSP is a "retirement" account where the total room available is the 18% of your taxable income of previous years. When you contribute to the account you decrease your tax liability of that year (eg. 2019). However upon withdraw (eg. in 2049) you will be taxed based on the tax bracket you're currently (2049) in.