Liberals Vow To Cut Contribution Limits to TFSA’s – The Math

This was originally published in a private newsletter by Derek Foster author of  The Idiot Millionaire Books.  Reprinted with permission.

I am certain this article will rub some of you the wrong way – but I need to write this…

The election news over the last little bit has focused on the niqab issue or the expulsion of terrorists from Canada.  Although these issues are important, I usually vote based on a logical “dollars and cents” analysis – NOT emotion!

So I have a few thoughts…

The Liberals and NDP worry me with their huge spending promises which will be funded by a return to deficits.  Governments have an abysmal record of handling taxpayer money, and small projected deficits easily turn into larger deficits which require government cuts down the road along with tax increases, BUT…

The much bigger issue is the general attitude of the parties towards us.  One of the best gifts to investors has been the creation of the TFSAs (tax-free savings accounts).  In this election, the Liberals have vowed to cut the contribution limits to these plans and instead force mandatory increases in CPP contributions (and benefits).  Let’s look at this promise in a little more detail – using simple math…

Right now, the maximum contribution amounts for CPP is $4,960/year (which maxes out at incomes of $53,600).  CPP is paid by working individuals between the ages of 18-65 (with a few exceptions).  For the maximum contribution, you would be assured the maximum benefit at age 65 of $12,780/ year for life.

What if instead of this mandatory CPP scenario, people took the $4,960 per year and invested it within the tax-free sheltered TFSA?

A quick search online shows that the average return of Canadian stock markets since 1970 (the year I was born) has averaged around 9% per year.
So, $4,960 invested yearly from ages 18-65 at 9% becomes… $3,389,000!

I would rather have a tax-free $3 million than the crumbs offered from CPP! Even if you ignore the portion the employer contributes, you would still end up with over $1.5 million!

For an apples to apples analysis, I searched a guaranteed annuity for life at age 65 and this nest egg would generate around $96,300 in income per year (or $192,600 per year with the employer contribution included) – compared to the $12,780 from CPP.

For anyone who is financially literate and not voting based on emotions, the choice is a no-brainer…

I will be voting Conservative….


Derek Foster (The Idiot Millionaire)

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