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Thu, Nov 6th, 2014, 01:23 PM #1
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Should you skip the RRSP contribution and pay off your mortgage first ?
http://www.theglobeandmail.com/globe...ticle16413200/
Mortgage vs RRSP calculator
Should I pay down my mortgage? Or contribute to my RRSP? Or do both by contributing the extra to an RRSP and then using the tax refund to pay down the mortgage?
Now you can find out with our mortgage vs rrsp calculator.
The first scenario shows the effect of putting additional contributions into your RRSP.
The second scenario shows the effect of putting the additional contributions towards your mortgage, then once the mortgage is paid off, putting those additional contributions into your RRSP.
And the third scenario shows the effect of contributing the extra into your RRSP first, then using the tax refund towards your mortgage.
https://www.lifeinsurancecanada.com/mortgage-vs-rrsp/This thread is currently associated with: N/A
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Thu, Nov 6th, 2014, 08:56 PM #2
Thank you, very interesting I always wonder if I should stop doing RRSP's and save that money to pay the mortgage. This article makes complete sense.
Last edited by emg; Thu, Nov 6th, 2014 at 09:13 PM.
Thinking of opening an ING account use this number 35728975S1 and both of us get a $50!! dollar bonus.
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Thu, Nov 6th, 2014, 09:37 PM #3
Interesting calculator. It didn't seem to work for me but could be a minor technical issue. One thing to consider that it doesn't take into account is risk. Paying down a mortgage is a guaranteed rate of return while the rate of return entered on the calculator for the RRSP is not guaranteed and can change over time
http://www.ourbigfatwallet.com - Saving, Investing & Frugal Living
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Fri, Nov 7th, 2014, 10:24 AM #4
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Fri, Nov 7th, 2014, 10:35 AM #5
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Yeah me too.
I personally would first pay : ( In this order )
1. High Interest Debt like Credit Cards , Line of Credit , Car loans , Student loans etc then
2. Mortgage
3. Then contribute to RRSP with left over amount.
The only exception I would make is if my company is matching my RRSP contribution. So if I put 5 % then they match 5 % & so on. This is basically FREE money from my company which I won't miss, if that's the case.
I know people who have lived frugally all their life & done RRSP's & now in their retirement they are getting less benefits from the gov. in their retirement yrs as their gov. benefits are clawed back due to their RRSP income. Sorry you have your own money , use that ! ..these benefits & money is for low income seniors who didn't plan for retirement.
But people without RRSP's are debt free in their senior yrs as they decided to pay off their mortgage first , plus they are getting more benefits in their retirement years like GIS , Guaranteed Income Supplement , plus more drug benefits etc from the gov. due to their low income.
RRSP looks like a ploy to pay you less gov. benefits & money in your retirement yrs ..ha ha
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Fri, Nov 7th, 2014, 01:17 PM #6
Every time you say "RRSP", you should tell yourself "RRSPs do not save tax, they defer taxes". This is a hugely important issue that does not receive a sufficient amount of press.
RRSPs make sense if:
1) You have a very high income year, and you expect in the near future to have a low income year. Put money in now, take it out later. Similarly, if you expect you income tax rate to be lower when you want to make withdrawals, then it makes sense to park the money in an RRSP.
2) You have a high matching rate with your employer. No need to not accept free money. This especially makes sense if you are approaching retirement. Just make sure you find out if it is locked in or not, as locked in plans have more limitations on when withdrawals may be made.
3) If you are going to invest in interest bearing instruments, then RRSPs are OK. But if you are going for dividends, or capital gains, then this income will be taxed at full income rates upon withdrawal, but would be taxed at about half that rate if you had the investments outside of your RRSP. This is an issue that the nice lady at the bank will not tell you.
4) If you can park some money in a spousal RRSP that your spouse can take out (after waiting sufficiently long so that withdrawals are not attributed back to you). This can effectively shift some of you taxes to your spouse.
Offhand, I greatly prefer TFSAs to RRSPs, and prefer paying down a mortgage more than either. I can't tell you what is better for you, but please take into account the above.
Also take into account the interests of people giving you advice. For instance, be highly suspect of anyone at the bank - they make more money if you open up an RRSP, and don't pay down your mortgage, so they have an interest contrary to your own.
Of absolute prime importance is the comfort factor. If you abhour debt (like I do), I really don't care if I could theoretically earn a bit more in an RRSP over time - I would rather be rid of the mortgage. It is not always about dollars and cents, but rather about sleep.
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Sun, Nov 9th, 2014, 08:26 AM #7
Would the same apply to resp?
Thinking of opening an ING account use this number 35728975S1 and both of us get a $50!! dollar bonus.
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Sun, Nov 9th, 2014, 04:23 PM #8
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Sun, Nov 9th, 2014, 06:55 PM #9
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