This speech took several rewrites to simplify the content. The title changed a few times too. I practiced using a teleprompter on my iPad. There's an amazing app called Teleprompt+ that also allows recording.
Saving The Government Way (January 20, 2011)
Mr. Toastmaster, fellow Toastmasters and guests.
Are you saving enough? The government wants you (SWEEP ARM ACROSS AUDIENCE) … all of you … to save. When you secure your future, Canada thrives and the burden on other taxpayers drops. To entice us, the government uses tax incentives. The three common tools for saving are the RRSP (Registered Retirement SAVINGS Plan), the TFSA (Tax-Free SAVINGS Account) and leveraging.
Since governments love spending our money, their gifts have catches. The small print taketh away —- especially from the wealthy. They fight back by going beyond the common. Let's explore how.
RRSPs were introduced in 1957 to encourage us to save for retirement. There's no tax on your contributions or your investment income. But … there's heavy tax when you take your money out, which you're forced to do by age 71. Pay now or pay later.
There are other drawbacks. Your deposits are restricted and so are your investment choices. There's even tax when you and your spouse have died if there's any money left. This year , the maximum deposit is $22,450. That's not much for the wealthy, especially if you don't have a pension plan. Especially when investment returns are low or volatile. Especially when we're living longer than ever.
We still weren't saving enough. In 2009, Ottawa finally introduced the Tax-Free Savings Account —- 12 years after Washington.
Here's how it works. You first pay tax so the government doesn't lose a penny today. Sorry. Next you invest from what's left. There's no tax on your investment income. Unlike an RRSP, there's no tax on the money you take out (LIFT BOX). What you remove, you can put back in (REPLACE BOX).That's powerful. That's too powerful.
That's why Ottawa will only let you invest $5,000 this year. That's puny compared to the cap on RRSPs, which was already unfair to the wealthy.
Leveraging isn't for everyone. It magnifies gains and losses. Do you see the roses or the thorns?
When you borrow to invest (say against your home equity), the loan interest cuts your taxes. The wealthy benefit most because they get hit with the highest rates. On the next $100,000 of income, would you rather pay $46,410 in tax? Or buy a new BMW? Every year.
GOING BEYOND THE COMMON SAVINGS TOOLS
RRSPs, TFSAs and leveraging have advantages. Life insurance for the wealthy combines them and adds more.
As with the TFSA, you first pay tax. Next you invest from what's left. You aren't taxed on the investment income until you take money out. That's like an RRSP except you can eliminate the tax if you're comfortable with leveraging.
Loans are tax-free. You can borrow against the equity in your home and you can borrow against the savings in your insurance policy. Don't worry about the loan interest. It gets added to your loan and the tax-free death benefit repays it. What's left goes to your heirs. How do you like that?
Tax-sheltered growth. Tax-free income. Tax-free death benefit. Life insurance is the only way to get all these benefits. How many of you knew this? (RAISE YOUR HANDS)
Few do. Remember there's also a large lump sum exactly when your family has the greatest need.
RRSPs and TFSAs have the same limits for all Canadians. Since when does one size fit all? Life insurance removes that discrimination. Deposits are limited by the Maximum Tax Actuarial Reserve (MTAR). This lets you make deposits of hundreds of thousands of dollars a year. More important, there's extra work for actuaries like me.
Would you rather pay tax or insurance premiums? Neither? Pick what's better for you.
Explore your unique situation. Talk to someone who knows (RAISE HAND) or search online to learn more. Otherwise you're saving the government way. Is that … the best way … for you?
(TURN TO TOASTMASTER) Mr. Toastmaster (WAIT TO SHAKE HANDS BEFORE LEAVING THE PODIUM)