74. Million Dollar Retirement From Two Methods – Infinite Banking Vs RRSP

You are listening to the Wealth Without Bay Street Podcast, a Canadian guide to building dependable wealth. Join your hosts, Richard Canfield and Jason Lowe, as they unlock the secrets to creating financial peace of mind in an uncertain world. Discover the strategies and mindsets to a financial future that you can bank on. Okay, so would you rather have a big fat million dollars in a registered retirement savings account, or would you rather have a big fat million dollars inside a cash value with a permanent whole life insurance policy? Jason?

Permanent meaning.

Ooh, that it's going to be there.

Until you're not, and that it's a dividend paying, participating whole life policy. I would say that option B would be, I would prefer to have the money reside inside of the policy versus inside of the rsp.

Yeah. Now, anyone who's listening to our podcast basically could have pegged that answer. They would have known. Well, Jason and Richard, they're gonna, they're gonna go with the policy because that's, that's kind of their bread and butter. That's what they do. But let's expand on that. What is the reason or the rationale? What are some points that would coincide with why any person might choose that? And I think it's always good to ask a couple of questions. Now, Jason, do you remember back in the day, you used to tell a great story about walking out of a room, falling down some stairs, smashing your head on the concrete at the bottom, waking up with amnesia. And that's kind of how you would go into this, this, this expansion around where you would rather have habit. And so maybe take our listeners through that. Let's, you know, let's, let's assume that they're in class with us. We're in a, we're in a class, we're in a session. They're all gathered around, they're at our desk. They've got a notepad. And because everyone listening, obviously, they have a notepad, they're taking notes at all times, and they're, they're intensively listening. Now, we've got a whiteboard. So just imagine if you're listening, there's a whiteboard up and there's a million dollars written on the board. And then there's a, there's RSP on one side and cash value on the other.

And we're, and we're not going to throw anybody down a flight of stairs.

Yeah. And if you're, if you're walking anywhere near stairs, just because we said it a couple times, you should probably stick to the edge of the hall or maybe Take the elevator.

Well, you know what, what led to that particular example was recognizing the fundamental truth that your money must reside somewhere. And when people think about places for their money to reside, a registered retirement savings plan is something that is quite common among Canadians. And we just wanted to contrast that to say, what's the difference? What is the difference in if you have money stored in one tool versus another? Well, the first and foremost is control. Taxes.

Uninterrupted, compounding all the things that will expand. But if you envision for a moment. So Rich, you and I are celebrating retirement day and you've got a million dollars of cash value that's accumulating inside of a dividend paying, participating, whole life policy.

Woohoo.

And you're super excited and pumped about that. And I've accumulated a million dollars inside of a registered retirement savings plan. Now, stereotypically, you should also be.

Be happy and pumped about that because.

For sure, because definitely, yeah, you've got a million dollars that's residing somewhere. So you've obviously done a very good job, you know, disciplined about savings, setting aside money. That's great. So cast a vision into the future. You and I are 65 years young and we're sitting down to breakfast at the golf course. I say, rich, congratulations on your retirement. We give each other a high five. Hey, that's great. Let's enjoy a great round of golf. And we're out there chatting and I say, rich, how much money do you need access to this year? And your response is, well, you know, I think I'm going to need access to about 50,000 bucks just to kind of maintain my lifestyle. And I've got things that I want to get done that require money. And what about you? And it's like, wow, Rich, coincidentally, I need the very same amount of money. Isn't that interesting? And so you and I stopped by the bank on the way back from the golf course, and I walk into the bank and I say, geez, I got to get 50,000 under the RSP. Well, in order for me to truly net 50, I've got to deal with the withholding tax. So I've got to get about 73,000 bucks out of that account in order for me to net 50. And that's just based on withholding tax. And you're saying to me, jason.

What about income? I said, well, Richard, this has nothing to do with my level of income. The withholding tax is there regardless of whether I have any income at all. The moment I want to take money out of the RSP the withholding tax kicks in, and you politely reminded me of the golden rule. Whomever has the gold makes all the rules. And then you went on to ask me a question about what tax rates were going to be every single year that I was in retirement. And I said, rich, I'm already depressed. I fell down flight stairs.

I had to pick you up out of the fetal position off the floor in the bank.

Yeah, just convulsing and super upset, like.

Hey, you're going to need someone. You need to clean up on aisle four. There's some tears, a little bit of slippery, slippery floor over there.

So the money came out, but my.

RSP account value went down by 73,000 in this example, at minimum. And then additionally, not just to jump ahead a little bit here, the day that you took that out, let's say you January 1st. Well, it wouldn't be January 1st because we were golfing. I guess we could be golfing in Florida or something.

Palm Springs.

Yes, Palm Springs. So you took the money out earlier in the year, and then at the end of the year, you still have to now claim that whole, that whole amount, that 73, as income for the year. And if there's any other tax to pay, then there might be an additional bill. But more importantly, if you're already receiving other Canadian government benefits, such as, you know, cpp that would be added to your income or OAS Old age Security, they have, they have a rule around what's called a clawback. So if you earning over a certain amount of taxable income, they begin to claw back the amount that they would provide you for that benefit. So now you're taking another income source that would be being provided to you, and you're diminishing that additional income source at the same time in correlation with the withdrawal that you took.

Yeah, you've got to withdraw. And so the operative word being that withdraw the account value, the balance of the account is going to immediately come down, and then the money is going to be spent. And so when I spend the money, I can't earn interest on it again. It's a permanent transfer of money away from me, from my family, not only for my generation, but for every generation that comes after me. And so you said, well, Jason, look, I know you can't remember any of this because you fell down a flight of stairs and you've got amnesia, but I just got in touch with the insurance company. I, I borrowed against my million dollars of cash value. I got 50,000. I didn't trigger a taxable event and my entire million dollars is going to grow every single day that I'm spending the 50 that I got from the insurance company. And I said, what? And you looked over to me and asked, isn't that good?

That's exactly what I would do.

And I looked back at you again and I said, what? And you said, and I've even got a death benefit. Heaven forbid if I'm on the 18th hole and it's 462 degrees Fahrenheit in Palm Springs and I spontaneously burst into flames and.

Or I'm one of the lucky few that get zapped by the random bolt of lightning passing through that. That day. And when the 32nd thunderstorm, right, and.

You'Re gone, while you've got a tax free windfall that shows up to your family when it's needed the most. Heaven forbid if something happened to me, if I fell down another flight of stairs and things didn't work out so well.

You've really got to be more careful around stairs, Jay, by the way.

I know, it's just. It's bizarre. So what I've left behind to my family is a taxable account. What you've left behind is a tax free windfall. And if tax free, it's tax rate. But hang on, let me get that back. Fell down a flight of stairs. First day with a new brain. Give me some time. I'm going to get used to it.

Okay.

My teaching point was.

I've left behind a taxable account. You've left behind a tax free windfall. So if tax rates go up, tax free becomes instantly more valuable. And it's all about control. If my money in the RSP is invested in mutual funds, I have absolutely no control. Whereas your money resides inside of a unilaterally binding contract that is contractually guaranteed to accumulate ever increasing value on a daily basis for as long as you're alive. And it doesn't stop unless you die, surrender the policy, or celebrate your hundredth birthday.

Yeah. No stairs will. Unless it ends up in the imminent death of falling down the stairs will cause that policy to collapse or end, and in which case you get result. And so, for anyone listening, you can circle back to one of our previous episodes called Cash Follows the Leader. And we go into an entire discussion about how that cash is accumulating day in and day out, because it's got to follow the leader. And we would encourage you to go back and listen to that episode because we go into some great lengths and detail to explain how that actually happens inside of the Contract. Now here's another really key point, Jay, that you made, and I want to make sure we capture this for the listeners, is you took out 73 from your account. So your million comes down by 73. Let's just call it, keep it, keep it simple. Let's call it 75 for easy math for everybody. So you have 925 left in the account, whereas I have a million in the account and my account value went up. I have an outstanding policy loan of 50 grand that's accumulating a little bit interest. But I didn't have to take 73 or 75, I only had to take out 50. I got the. We had the same amount of money to spend and we started with the same value proposition. Now here's the thing. If your money is invested in the markets, which generally it is, and you know, at that stage of the game, I'm guessing you spend a much enough a bunch of energy, time, effort, blood, sweat and tears to accumulate that pile of money inside the registered account. Now you're looking at make trying to make it consistent. What kind of stuff do you want that in? Something safe, something predictable, something secure or something that's at a lot of risk.

Yeah, Juan, I would say to you too.

That'S definitely a consideration. But again, the difference what happened was I took financial energy out of my system and transferred it away to someone else. You maintained all of the financial energy in your own system. You didn't deplete any of it because you borrowed against it, you didn't withdraw from it. And that is such a significant, significant understanding to develop because.

Again, it's not about either or.

What I like to discuss is what is the difference is the difference between doing it one way or the other. And then you get to decide when you understand all the differences, which approach is best for you. And registered retirement savings plans are something that many Canadians do, which is great. There's a place for that and tax deferral and whatever other advantages people may find in that type of tool. It brings me back to what the late R. Nelson Nash used to say to us. Often he would say if the government creates a problem, too much tax or onerous taxation, and then turns around and grants you an exception to the problem that they created by permitting you to put money into a tax qualified registered retirement savings plan, aren't you just a little bit suspicious that you're being manipulated? These plans are all created under the guise of giving you a break. If the government really wanted to give us a break, all they need to do is cut the taxes. Does anybody listening or watching believe that the government actually wants to do that? Regardless of what your political leanings are? And Richard in the policy, the million bucks that he has growing in there every single day, tax rates can go up to 80%. And that has no immaterial impact on Richard's retirement plans.

Yep. And I didn't have, if there was any other retirement sources such as again I mentioned the OAS or what have you, these clawback rules and things, they're not impeded by that because the way that I took the income for this collateral instrument did not trigger a taxable event for me. And so it doesn't impede my lifestyle and it doesn't impede other things that I'm working on. And additionally it's important we ask questions. Questions stimulate our brain and stimulate our mind. And so a question that I would have people who are listening think about is regardless of where your age is today, and maybe if you're listening in, you're a younger individual or you're listening in and you're in this category of your pre retirement or you're in retirement in some way, just consider over your lifespan, what direction have taxes gone? Have they gone up or have they gone down? More importantly, if you were, if you were to talk to anyone that's older than you, that's maybe already retired, or you talk to your parents, your grandparents and you were to ask them that same question, not only would they probably would laugh you out of the room because the answer's generally pretty clear, but the follow up question is this. So once you've asked that question, what direction in your lifetime or when your parents or grandparents lifetimes have taxes gone up or down? What, what's the probability, low, medium or high that they are going, that those rates are going to continue to rise in the future. And just think about it for a minute. We're here, we're still on, I don't know, 784 million of the COVID 19 pandemic. And.

We'Ve had unprecedented spending in North America, really globally, so Canada, U.S. unprecedented spending of, of money that eventually must, the bill must come due, it must be paid. Yep. Well, what are they going to pay it with? It's got to come from the taxpayer in some way. The only way they can get the money to fund these, these, these liabilities and these things that are created, these debts and deficits, et cetera, is off the backs of the taxpayer. It's the only, it's the only revenue source. So Just consider that when you think about what direction taxes are going. So do you want to, do you want to put capital into an environment where you're going to have to take it out at an unknown rate of taxation that you don't know and can't predict and can't control? Or would you rather move from tax unknown to tax control where you have the ability to understand the dynamics of when you want to go and access income and what you can do about it? And more importantly, you're going to be able to leave tax free on the back end.

That brings me to a business proposition for our viewers and our listeners. So here's the proposition. You and I are going to go into business together. I'd like to offer you that opportunity. You're going to put up all the money, you're going to take on all the risk and you get to sell some or all of the business at any time that you choose. But you have to get in touch with me before you do that each time. And each time I will let you know what percentage of the business I own. Do you still want to pursue that business opportunity and go into business with me? Well, the answer logically would be not a chance. And that's what people are doing with registered retirement savings plans. You've got Revenue Canada as your silent business partner. And in my case inside of the rsp, using me again as the example, if I leave behind a taxable account and I have no idea what the tax calculation is going to be, then I can't say with absolute certainty that my objectives are going to be achieved because I have a silent business partner that could put a monkey wrench in.

Those plans, can change the rules.

And if you are leaving behind a tax free windfall, well, you can control what you're accessing in your retirement to ensure that your objective is met in terms of how much tax free windfall you want to leave behind to the next generation, to charitable giving, to whatever entity or person you want to leave money to. And you can do that all on a tax free basis. And when you have a situation, this pandemic that has triggered the necessity for additional money to be introduced into the money supply. And the Central bank of Canada has produced more than 100%. The Central bank of Canada has printed more than 100% of the total tax revenue that came in in 2020.

Houston, we've got a problem. And it shouldn't surprise people to hear about the phenomenon that's going on where across the border states are opening up restaurants, are Opening up. They're booming. And because of all the incentives to stay indoors and to not work, they can't hire enough people to keep up with the demand.

And so there are unintended consequences of how that money is managed. But more importantly, look, the clock's going to strike midnight at some point and somebody's got to pay the bill. And if you think about just your own situation, haven't talked to anyone Rich, you can attest to this. Haven't spoken to anyone yet who has said, I really feel like I'm not taxed enough. Hey, what are you doing here today? How can we help you? Well, I've got a real concern. I really feel like I'm not being taxed enough, and I need some help with that.

You know, people are sick and tired of it. You, you are taxed before you even receive the hard, the, the, the income that you work so damn hard for. You're taxed on it before it even gets into your bank account.

Because of course, the government trusts you.

Well, and they've demonstrated that they can do a better job with the money, haven't they? The government?

Oh, of course they have. And so, and then you pay taxes in many provinces in our country, you pay sales tax to spend the money that you are already taxed on.

And then you may have to pay additional income tax when you file your tax return.

Because not enough was withheld at the source, which is your employer. And then you get taxed again when you leave taxable accounts behind at your death. And you've heard me share the expression, there's two certainties, death and taxes. And the only thing that doesn't get worse when politicians meet is death.

And so regardless of what your political leanings are, it doesn't matter. The situation is real. Doesn't matter what your political leanings are. We have to address it and deal with it. So make that. Make the choice. Do you want your money stored inside of an instrument where someone else has all the gold and someone else makes all the rules, and wherever that wealth resides, someone's going to try and steal it? Not a matter of if it's when, or do you want money residing inside of an entity that's a unilateral, binding contract and can't be encroached upon by anybody?

I think the choice is pretty clear. I would suspect our listeners would agree and hopefully we give them something to chew on. There's a couple additional things I want to. I think I would take this opportunity to expand on and just to connect the Dots a little bit together. And going back to Jason's example we talked about. Okay, so we all agree, everyone's going to pass on, we're all going to die at some point. Well, in the registered retirement account, when that happens, they go and register the value as of the day that a person leaves planet Earth. So as an example, let's just assume that we're in mutual funds, the stock market, or it's cryptocurrency, whatever it is, doesn't matter. It's the values in something and it's a market oriented product. Well, if the value drops from the day of death, let's say that was the high point. Like earlier the last two months we've had a, we had a spike up in bitcoin and stuff and then there was a pretty good tweet there. It dropped everything like a hot potato. Well, let's assume that you died on the day that things were at the peak. But now when it's time to actually pay the bill, your family, the people looking after your estate, they've got to pay the final tax bill to the Canadian government and they have a certain period of time to file that tax, that tax return and pay the bill, but they're going to pay the bill on that peak value. But if the account value has dropped like a hot potato and it's, you know, whatever, you had your million dollars and now the account value is at $700,000, you got to pay a tax on the, on the million, not on Severn, but you only have seven left in the account to do the deal. That is a fundamental lack of control. And people don't understand that's one of the ways that money is that you work for so hard, just, it just disappears out of your life. And for the, you spent all the work and the effort and the time to create it, to do the hard thing, just to see all that work and effort get destroyed and pulled away from you and your loved ones, people you care about because of poor planning. It's just, it's kind of ludicrous if you understand it. The problem is that most people don't even understand it's going to happen, that it's even a possibility because it's a topic we don't like talking about.

If you put a little bit of.

Good planning in, you know, it's like, it's like imagine you're going to build a house, but you just, you just ordered a bunch of lumber and you got some screws and nails and some tools and you just had it all show up on the job site and you just went out there with a couple people and some tool belts and just started banging things together. But you didn't have a drawing to look at, you didn't have an architectural plan, you didn't build a foundation, you didn't actually know what you were building. You're going to have a pretty weird, ugly looking house that's probably going to fall down. Why would you do your financial life that way? It doesn't make any sense. And so another thing I want to circle back to, Jay, before we wrap this up is that in the example of me having the million in cash value and you having the million in the RSP when you did that withdrawal, and then the following year you had to do another withdrawal, the same like 75,000. Yeah, but if your, if your account went to 925 and the market didn't produce to increase that account and then you're drawing down again another 75 to maintain your income, well, what's going to happen is if the market drops in that period, you're going to have a double pain event. Your withdrawal capacity and the market dip has now taken the time frame of income potential and it's completely reduced it in a dramatic way. And your ability to recover is almost non existent. So you create a real double paying situation. And that just isn't the case in the cash value policy, the permanent dividend paying whole life insurance policy that's been built well and it's been standing the test of time. And so we shouldn't even say that we're comparing one versus the other. I mean, they're just so fundamentally different. The reality is you just got to understand where do you want your money to reside? How much control do you want over your money? Do you want the maximum amount of control or do you want the least amount of control? And one of these things will give you more than the other. That's just, it's just the way that it is. Period.

Very, very good. Well, there you have it, ladies and gentlemen. That was an interesting, interesting.

Topic and I appreciate Richard bringing that up. You know, he raised that right before we hopped on the air and said, hey, this is something I want to talk about today. And I said, okay man, let's.

I want to talk about you falling down the stairs. Jay, what can we wrap around that like?

And I said, rich, I am not recording myself falling down a flight of stairs.

It'll be in the blooper reel.

It could be, it could be. I do have a stunt double so we could. We could do that. All right, well, thank you again to all our viewers, to all our listeners. If you're on the YouTubes, just take a look right over there. There's a playlist of recommended videos that we would encourage you to continue your journey of learning. Make the rest of your day great, Rich. This was a lot of fun getting ready for our next episode. Thank you to all who watch, subscribe, tune in, comment, leave feedback. We appreciate all of you very much. Again, make the rest of your day great. And we'll see you on the next episode of wealth without Bay Street.

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