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Newbie question about the Tax Efficient Portfolio Allocation tool

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asked Jun 06, 2016 10:47 AM by
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Hi,

I was wondering if someone here could help me. I'm trying to use the Tax Efficient Portfolio Allocation tool -- a great tool, by the way -- and it asks for the "Portion of income you plan on saving (%/year)." I'm sure that this is an important question, but I'm having trouble understanding exactly why. What am I missing here? The reason I'm so concerned about this question is because the percentage of my income that I plan on saving is likely to change, sometimes dramatically, from year to year, as I'm currently considering going back to school and possibly buying property at some point. Any advice on what would be the best way to answer this particular question? Thanks in advance. (And a shout-out to Jin for the great job he's doing with the site!)

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answered Jun 06, 2016 07:46 PM by
Jin Won Choi gravatar image Administrator

Hi Burt, welcome to the site.

The reason why I ask for the portion of income saved, is because that's how the algorithm determines how much savings you would have when you retire. With greater savings, RRSPs become more tax inefficient because as you withdraw more money during retirement, you will belong to higher tax brackets. You don't need to be precise about your answer - a rough guess should suffice.

Hope that helps,

Jin

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