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Does sheltering pay? Darren and Danielle's story Add to ...

After their $5,000 bonus, Darren and Danielle are both in the top tax bracket. Here’s how they invest their money.

Darren’s choice:

  •  He doesn’t shelter his $5,000 so he pays tax on his money.
  • After taxes, he is left with just $2,500, which he invests in a Guaranteed Investment Certificate (GIC).

Danielle’s choice:

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  • She puts her extra pay directly into an RRSP account. She gets to invest the whole $5,000.
  • She also buys a GIC.

Assuming Darren and Danielle both keep rolling the GIC over every time it comes due, who will come out ahead? To keep the math simple, let’s say their money grows 5% every year. Here’s what happens after 20 years:




Cash available




GIC − $2,500

RRSP/GIC − $5,000

After 20 years


$13,266 (before tax)


The results: Danielle has more than twice as much as Darren. Of course, she will have to pay tax on that money when she takes it out of the RRSP. But if her income is lower when she retires, she’ll pay tax at a lower rate. For example, if she pays 33% tax when she retires, she’ll get to keep $9,020.88. That’s almost one and half times what Darren ends up with.

Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca

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